GLOBAL MARKETS-European shares head for weekly gain after Ifo
* European share markets set for rise on week
* French banks lead gains
* Euro up, Bund yields off record lows after buoyant Ifo survey
* Spain, France worries weigh on confidence
By Catherine Evans
LONDON, April 20 (Reuters) - European shares were set for their first weekly rise in nearly a month on Friday and the euro edged higher after buoyant German business sentiment, though Spain's public finances and France's presidential election kept gains in check.
German government bond prices eased back from record highs hit earlier in the session following the release of the unexpectedly rosy Ifo business sentiment survey, but demand for safe-haven debt remained solid.
The pan-European FTSEurofirst 300 index was up 0.4 percent at 1,044.98 points, having gained 17.6 points since last Friday's close, clawing back some of the 78 points lost in the previous four weeks. World stocks as measured by the MSCI world equity index were up 0.1 percent at 325.26, and U.S. stock index futures pointed to a rise on Wall St.
"I think the sell-off (in equities) is overdone. The reason I say that is because all the fundamentals still look very good," said Daniel McCormack, a strategist at Macquarie Securities, citing momentum in company earnings and resilient global growth.
"Spain will generate a little bit of volatility over the next six months, but the pressure on the market is really forcefully up."
Euro zone banks drove the rebound, jumping 2.6 percent.
BNP-Paribas and Societe Generale climbed 4.5 percent and 5 percent, respectively, after BofA Merrill Lynch said valuations for the French banks, which had fallen around 20 percent since the start of the month, were attractive despite significant sovereign debt-related risks.
Germany's Dax, up 1 percent, was the best performer among core European national indexes and is the biggest gainer so far this year, helped by exporters benefiting from growth in the emerging markets and the United States.
The Munich-based Ifo thinktank said its business climate index inched up for the sixth month in a row in April, to 109.9, signalling that Europe's largest economy continues to outpace peers and shrug off the effects of the euro zone debt crisis.
"The DAX is likely to continue its outperformance unless there is a sharp slowdown in Emerging Markets (China in particular)," BNP-Paribas Corporate and Investment Banking said in a note to clients. "The recent easing measures in Asia are likely to support further growth."
The euro was up 0.2 percent at $1.3160, paring gains after hitting a session high of $1.3180. It remained firmly within its recent trading range between $1.30 and $1.32, however, and traders said sizeable options expiries around $1.32 were likely to check any further gains.
"The Ifo surprised once again to the upside, so we gained a bit of intra-day volatility, but the wider ranges are still very tight," said Chris Walker, currency strategist at UBS.
"Spanish yields are back close to 6 percent, and that's clearly the focus of the markets in the longer-term. The euro could break below $1.30 if there is big escalation in Spanish yields or if French bonds take off."
German Bund futures were slightly lower on the day at 140.45, having hit a record high of 140.86 before the Ifo release. German 10-year yields were last at 1.65 percent , off a 1.59 percent all-time low plumbed earlier.
Spanish 10-year government bond yields rose 5 basis points to 5.97 percent, after a debt auction on Thursday fell short of market expectations, and the cost of insuring its debt against default rose close to a record. A sustained break above 6 percent would raise fears that Madrid's borrowing costs could become unsustainable and push it into a bailout.
French bonds have also sold off in an increasingly nervous market ahead of Sunday's first round of its presidential election, and its credit default swap costs have risen. Ten-year yields were last at 3.08 percent.
Markets are concerned that the expected winner, Socialist Francois Hollande, may have a looser grip on government finances than current President Nicolas Sarkozy.
Oil rose to $119 a barrel, trimming its decline this week, as the Ifo result countered nervousness about the euro zone debt crisis, with worries about supply from sanctions-bound Iran also lending support.
The International Monetary Fund is expected to announce over the weekend the amount of extra funds raised to bolster the euro zone's financial firewall. IMF managing director Christine Lagarde wants at least $400 billion in extra funds. So far $320 billion has been pledged from Europe and Japan.
Citibank analyst Greg Anderson said in a note that if the total fell short of the $400 billion soft target, the euro could take a hit.
Major emerging powers also stood ready to pledge money to bolster the IMF's crisis-fighting war chest, though Brazil was holding out for promises that their voting power at the global lender would increase.
"If Brazil really digs in its heels, I don't think the market will be too kind to it," Markus Huber, head of German high net worth trading at ETX Capital. "There has to be unity. That's the only way investors think the crisis can be contained."
The dollar slipped against a basket of major currencies but gained against the yen. Bank of Japan Governor Masaaki Shirakawa said it would continue powerful monetary easing until a 1 percent inflation target is in sight. His comments raised expectations the BoJ will ease policy further next week.
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