Global stocks gain, dollar rises towards 2008 peak : US Business

By Natsuko Waki

LONDON (Reuters) - World stocks edged higher on Wednesday after the previous day's tumble to their lowest level in almost two years attracted some buyers, while rebounding commodity prices helped resource shares.

The dollar rose towards the previous day's seven-month high against a basket of six major currencies, helped by expectations that growth outside the United States is deteriorating fast.

Asian and European stocks managed to defy Tuesday's fall on Wall Street, where fears over the future of top U.S. mortgage firms Fannie Mae and Freddie Mac and dismal housing data dragged financial firms lower.

Helping sentiment on Wednesday, Chinese shares <.SSEC> rose as much as 7.6 percent thanks to speculation the government would introduce a stimulus package to boost the slowing economy.

"Bargain hungers have returned to the market on talks that a rescue package is on the way," said Francis Lun, general manager from Fulbright Securities in Hong Kong.

The FTSEurofirst 300 index <.FTEU3> rose half a percent while the MSCI main world equity index <.MIWD00000PUS> gained a third percent, edging away from the previous day's low.

China must increase domestic spending to keep growth on track as the global economy weakens, Vice-Premier Li Keqiang said on Wednesday, identifying a need to increase household incomes and rural consumption.

DOLLAR UNDERPINNED

On Tuesday, U.S. stocks fell across the board on fears that U.S. mortgage firms may need a government bailout and a prediction that Lehman Brothers would suffer a further $4 billion in write-downs. Data also showed U.S. housing starts fell in July to their lowest annual rate in more than 17 years.

The dollar managed to shrug off negative news flow, rising 0.2 percent against a basket of major currencies <.DXY>, after hitting its highest level this year on Tuesday.

Investors have been focusing on recent data showing growth in Japan and the euro zone contracted in the second quarter, moving half way into recession. U.S. growth was positive in the same period.

"Incremental risk to global growth from weakening growth data from Europe will continue to put a floor on the dollar," UBS said in a note to clients.

Emerging sovereign spreads tightened 2 basis points while emerging stocks <.MSCIEF> rose more than 1 percent, also edging higher from the previous day's one-year low.

The September Bund future fell 20 ticks as safe-haven demand waned as risky assets gained.

U.S. light crude rose 0.3 percent to $114.95 a barrel -- still staying more than $30 below the July record peak.

Gold rose to $811.50 an ounce.

(Editing by Mike Peacock)

(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.