* World stocks rise for 3rd day on recovery rally
* Investors square up ahead of U.S., UK long weekends
* Unmoved by signs of impasse over Spain labour reforms
By Dominic Lau
LONDON, May 28 (Reuters) - World equities rose for the third
day running on Friday and the euro extended gains against the
dollar as investors refrained from betting on further trouble in
the euro zone's debt crisis ahead of a holiday in major markets.
Crude prices <CLc1> advanced to above $75 a barrel, touching
a two-week high, while the cost of protection against government
debt default in Greece and other peripheral euro zone sovereigns
fell.
Fears that other euro zone countries could head the way of
Greece had sparked a sell-off in financial markets around the
globe. But there has been no major shock from Spain, Portugal or
Ireland to spook markets in recent sessions.
Investors are also squaring positions so as not to be
exposed through a long holiday weekend in London and New York.
The euro <EUR=> rose 0.4 percent to $1.2418 on Friday. But
it has fallen 6.6 percent against the dollar this month and is
set to register its sixth consecutive monthly loss.
"There seem to be a lot of month-end fixings and the euro is
gaining from these. No matter how bad things are, if the
market's positioning is all one way then there's a bit of a need
for a breather," a London-based currency trader said.
"But there is bound to be more bad news on the horizon,
which will send the euro into another downward spiral."
The single currency gained more than 1.5 percent against the
dollar on Thursday after China reaffirmed its commitment to
diversify currency holdings away from the greenback and denied
it was reviewing its holdings of euro assets. []
Euro gains on Friday came despite signs from Spain that
talks with unions and business to overhaul rigid labour laws
were going badly, casting doubt over reforms crucial to reassure
markets about the country's long-term solvency.
European Central Bank policymaker Lorenzo Bini Smaghi said
the euro zone's problems were an early warning to the rest of
the world.
STOCKS REBOUND
Stocks were also helped by a relatively strong economic
picture in the United States and emerging economies, as well as
robust corporate earnings.
Global equities measured by the MSCI All-Country World Index
<.MIWD00000PUS> advanced 0.8 percent to hit a one-week high. The
index, however, is down 9 percent this month, on track for its
worst monthly loss since February 2009.
Europe's FTSEurofirst 300 <> index added 0.5 percent,
while Tokyo's Nikkei average <> rose 1.3 percent in its
best one-day performance for two weeks as exporter shares
climbed on a halt in the yen's advance.
U.S. stock index futures <SPc1> <DJc1> <NDc1> gained about
0.2 percent, indicating a firmer start for Wall Street.
Some analysts were still pessimistic.
"This recovery rally could soon hit resistance on the
upside. This week's low point wasn't the capitulation point, so
the risk is still on the downside," said Alexandre Le Drogoff,
technical analyst at Aurel BGC.
The cost of insuring Greek government debt fell to 655 basis
points, 27 bps tighter than on Thursday, according to
credit-default swaps monitor Markit. The CDS of other peripheral
sovereign issuers, such as Portugal and Ireland also fell.
Yields on benchmark 10-year Bunds <EU10YT=RR> fell 3 bps to
2.690 percent, while those on 10-year U.S. Treasuries
<US10YT=RR> dipped 3 bps to 3.3272 percent.
In the commodity market, copper prices <MCU3> gained for the
third straight day, up 0.6 percent on better risk appetite.
(Additional reporting by Jessica Mortimer, Blaise Robinson and
George Matlock; Editing by Patrick Graham)
