GLOBAL MARKETS-Stocks hit 2-week highs, bonds recover

                                
 * World stocks rise to two-week highs
                                
 * Political risk simmers after attacks in India
                                
 * Euro zone bond yields plumb three-year lows
                                
 * Oil falls towards $53 with demand uncertain
                                
 
                                
 By Ian Chua
                                
 LONDON, Nov 27 (Reuters) - Global stocks hit two-week highs
on Thursday with European equities playing catch up to strong
gains overseas, but more grim economic reports briefly sent
government bond yields in Europe to a fresh three-year low.
                                
 Trading though is seen lacklustre with Wall Street staying
shut for the Thanksgiving Day holiday.
                                
 Renewed expectations that Washington will bail out the U.S.
motor industry and China's aggressive interest rate cut on
Wednesday had helped lift some of the gloom surrounding the
global economy.
                                
 But there was no shortage of bleak news with two of
Britain's high profile retailers DSG <DSGI.L> and Kingfisher
<KGF.L> posting downbeat results and weak outlooks, while a
report showed euro zone economic sentiment plunged to a 15-year
low this month. See [ID:nLR346426]
                                
 A string of dismal U.S. economic reports this week has also
caught up with the dollar, pushing it lower against a basket of
major currencies, while political risk emerged after attacks in
India's financial capital.
                                
 More than 100 people have been killed with scores more
trapped by Islamist gunmen in Mumbai after attacks on luxury
hotels, hospitals and a landmark cafe.
  (For details please double click on [ID:nSP391740])
                                
 For now though, stocks are eking out gains. The FTSEurofirst
300 <.FTEU3> index of top European shares rose 1.9 percent,
Britain's FTSE 100 index <.FTSE> put on 1.4 percent and
Germany's DAX <.GDAXI> climbed 1.6 percent.
                                
 This followed gains of 2 percent for Japan's Nikkei <.N225>,
2.4 percent for MSCI's measure of other Asian stock markets
<.MIAPJ0000PUS>. On Wednesday, the U.S. Dow Jones industrial
average <.DJI> rallied 2.9 percent.
                                
 MSCI world equity index <.MIWD00000PUS> climbed 0.9 percent
to 217.82, having earlier reached a peak of 218.46 -- a level
last seen in Nov. 14.
                                
 "There is cash about. In asset allocation terms, people are
very underweight equities and there may be a number of cases so
far underweight that they've got to put money to work in the
equity market ... ahead of month end," said Marc Ostwald,
strategist at Monument Securities in London.
                                
 Meanwhile, the dollar <.DXY> eased 0.2 percent against a
basket of major currencies.
                                
 "The greenback for long the beneficiary of safe haven flows
has over the past couple of days been forced on the defensive as
poor economic news weighed on the market," said Mitul Kotecha,
head of global foreign exchange strategy at Calyon.
                                
 "Yesterday's data releases added to these woes, showing a
huge drop in durable goods orders, a decline in personal
spending, a weak Chicago PMI and another big increase in initial
jobless claims. The latter points to a USD unfriendly non-farm
payroll report next Friday."
                                
 
                                
 BOND YIELDS HIT 3-YEAR LOW
                                
 European government bond yields reversed early gains with
the 10-year slipping to a fresh three-year low in the wake of
data showing a drop in economic sentiment as well as inflation
expectations among companies and households.
                                
 "Given this backdrop, there is clearly scope for the ECB to
deliver a sizeable interest rate cut next Thursday," said Global
Insight's chief European and UK economist Howard Archer in a
note.
                                
 The 10-year euro zone government bond yield <EU10YT=RR> fell
as low as 3.26 percent, a level last seen in January 2006,
before climbing back to 3.282 percent, little changed on the
day.
                                
 On Wednesday, the U.S. benchmark 10-year yield hit a 50-year
low below 3.0 percent after a flood of bleak U.S. economic
reports spurred demand for safer government debt.
                                
 U.S. crude oil <CLc1> slid more than $1 towards $53 a
barrel, reversing some of the 7 percent gains a day earlier as
investors fretted about falling demand.
                                
 Recent data showed U.S. crude stocks rose sharply last week
and U.S. September demand fell to its lowest level for any month
in more than a decade.
                                
 In the interbank money market, more signs of year-end
funding strains have started to emerge with one-month dollar and
euro London interbank offered rates (Libor) both jumping.
 (Additional reporting by Kirsten Donovan; A)