* World shares recover after series of losses
* Wall Street set for gains
* Euro and pound recoup earlier losses
By Jeremy Gaunt, European Investment Correspondent
LONDON, Jan 26 (Reuters) - World stocks shook off deepening
gloom about the world's economy and banking system to reverse
days of losses on Monday but risk aversion was still in the air
for currency traders.
Wall Street looked set for a positive start and MSCI's main
world stock index <.MIWD00000PUS> was up 0.7 percent. Emerging
market stocks <.MSCIEF> gained more than 1 percent.
The pan-European FTSEurofirst 300 index <> was up 1.4
percent after losing on 12 of the past 13 sessions. The index
lost 5.4 percent last week and is down around 7.5 percent for
the year-to-date.
A recovery in heavily sold banks was one reason. Dutch
financial group ING <ING.AS> said it would tap into government
guarantees and Barclays <BARC.L> said it did not need fresh
funding.
ING was up 22 percent. Barclays gained 28 percent.
Earlier, Japan's Nikkei <> stock average hit a nearly
three-month closing low, sliding 0.8 percent on earnings.
Corporate earnings have become the latest in a stream of
concerns among investors.
Thomson Reuters proprietary research shows that the fourth
quarter 2008 earnings growth rate for the S&P 500 <.SPX>
declined to -28.1 percent from -20.2 percent during the
past week due primarily to lower than expected earnings from a
number of companies in the Financials sector.
Seven of the 10 sectors in the S&P 500 are looking at a
year-over-year decline in earnings, which is the highest number
of sectors recording negative growth since the fourth quarter of
2001.
Governments, in the meantime, are still struggling to get
their stimulus plans to work.
U.S. President Barack Obama's top economic adviser, Lawrence
Summers, did not rule out the possibility that more money may be
needed to stabilise the U.S. financial system, as Obama sought
at the weekend to build public support for an $825 billion
economic recovery plan.
The Federal Open Markets Committee (FOMC) meets on Tuesday
and Wednesday, with the market awaiting signs of how the Fed
will help the broader U.S. economy -- and by extension, the
world -- now its main monetary tool, the fed funds rate, is set
to remain in a range of zero to 0.25 percent.
VOLATILE CURRENCIES
Th euro and sterling trimmed early losses as the rally in
bank shares bolstered European equity markets. But concerns over
the global downturn and banking sector woes kept investors
cautious.
The pound and the euro got a slight reprieve after taking a
beating last week when sterling fell to 23-year lows against the
dollar and the euro hit six-week lows against the dollar.
The euro was down 0.2 percent at $1.2963 <EUR=>. Against the
yen, it was up 0.4 percent at 115.80 yen <EURJPY=R>, reversing
early losses. The single currency hit a seven-year trough of
112.08 yen last week.
Sterling was up 0.3 percent at $1.3853 <GBP=>. The pound hit
a 23-year trough of $1.3500 on Friday.
Euro zone government bonds fell ahead of a busy week for new
issuance.
Two-year euro zone government bond yields <EU2YT=RR> were 13
basis points higher at 1.579 percent, having hit a record low of
1.348 percent on Friday, helping drive the 2/10-year yield curve
to its steepest since mid-2004.
Ten-year yields <EU10YT=RR> were up 5 basis points at 3.275
percent.
(Additional reporting by Charlotte Cooper and Tamawa Desai)
