GLOBAL MARKETS-World stocks, euro rebound after German ruling

LONDON, Sept 7 Wed Sep 7, 2011 7:13am EDT

LONDON, Sept 7 (Reuters) - World stocks rose from a two-week low on Wednesday and the euro rebounded across the board after Germany's top court rejected lawsuits aimed at blocking Berlin's participation in bailout packages for Greece and other euro zone countries.

The Constitutional Court also handed the country's parliament a greater say over euro zone bailouts, potentially hampering the government's ability to act decisively against a two-year-old debt crisis.

But it at least cleared the way for Germany to contribute more to the euro zone's rescue fund, giving temporary relief to investors after this week's sharp sell-off in risky assets.

Better-than-expected data on the U.S. services sector and Australian growth as well as speculation that Washington may unveil a $300 billion package to create new jobs also helped improve the mood.

"Today's ruling should bring some relief to financial markets as a total chaos scenario has been avoided but it should not lead to euphoria," said ING economist Carsten Brzeski.

"The ruling confirms our view that the German piecemeal approach on the debt crisis is not likely to change but eventually the German parliament will vote in favour of a second Greek bailout package and the beefed-up EFSF."

MSCI world equity index rose 1 percent after hitting its lowest since Aug. 22 on Tuesday. The benchmark index is still down more than 10 percent.

European stocks gained 1.9 percent, having hit a two-year low in the previous day.

"We got a brief pop higher in equity markets. It doesn't really change much, except the perception that the euro might collapse, if the Germans ruled (bailouts) unconstitutional, so that fear has gone in the short term," said Michael Hewson, market analyst at CMC Markets.

Emerging stocks added 1.9 percent. U.S. stock futures were up around 1 percent SPc1, pointing to a firmer open on Wall Street later.

U.S. crude oil CLc1 rose 1.2 percent to $87.09 a barrel.

GROWTH MEASURES

Investors also looked ahead for measures to boost growth from Group of Seven finance ministers meeting this weekend and separately from U.S. President Barack Obama.

IMF Managing Director Christine Lagarde has called for governments to consider recapitalising banks and adjusting budget austerity drives to support growth, the concerns at the centre of market weakness since late July.

Sources told Reuters G7 finance ministers will discuss measures at a summit at the end of the week and CNN cited Democratic sources on Wednesday saying that Obama plans to lay out a job-creation package on Thursday with new spending offset by budget cuts .

Bund futures FGBLc1 fell 50 ticks, tracking a dip in U.S. Treasuries after the CNN report.

The dollar gained 0.5 percent against a basket of major currencies.

The euro had risen as much as 0.8 percent to $1.4100 at one point, after falling as low as $1.3971 on Tuesday.

"There's been a lot of pessimism priced into the market this week but we're grinding through the worst of it so understandably we've had a mini pull-back here," said Nomura rate strategist Sean Maloney. "But event risk remains high and we expect more pitfalls to come."

The Swiss franc, which had been along with gold the safe haven of choice for investors, held within the 1.2000 per euro target set on Tuesday by the Swiss central bank to weaken the franc and prevent a recession.

The dollar lost half a percent to 77.16 yen .

The Bank of Japan kept its policy settings unchanged and maintained its assessment that the economy was steadily picking up, with output and exports nearly returning to levels before a devastating earthquake and tsunami in March tipped Japan into recession. (Additional reporting by Kirsten Donovan; Editing by Ruth Pitchford)

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