GLOBAL MARKETS-Equities rise as oil, dollar worries ease

(Updates throughout, adds Wall Street outlook)

By Jeremy Gaunt, European Investment Correspondent

LONDON, Aug 18 (Reuters) - Global stocks rose and Wall Street looked set for a positive opening on Monday as early worries about stronger oil and a weaker dollar diminished.

European shares were firmer with the FTSEurofirst 300 .FTEU3 index of top European shares up 0.5 percent having earlier been in negative territory.

"The stock market is looking for direction, and it is looking towards currencies and commodities as it has become more quiet on the macro and earnings front," said Markus Steinbeis, head of European equities at Pioneer Investments in Munich.

The initial fall on European stock markets reflected concern that the dollar was starting to weaken again and the oil price was rising.

Oil rose well above $115 a barrel earlier in the day as Tropical storm Fay was seen threatening production and supply in the Gulf of Mexico.

But it later fell back to trade CLc1 around $113.75 a barrel.

"Oil was strong earlier because of the storm," said Christopher Bellew, broker at Bache Financial. "If the storm proves not to be so serious to the oil industry then it's quite likely we'll see the market continue to retreat," he said.

Oil's fall to a more than 3-month low of $111.34 on Friday has helped ease market concerns about inflation.

Equities were generally higher. MSCI's main gauge of world stocks .MIWD00000PUS was up about a quarter of a percent while its emerging market index .MSCIEF gained a half a percent.

Earlier, Japan's Nikkei average .N225 rose 1.1 percent as exporters gained on recent yen softness.

"There has been a tug-of-war between negative fundamentals such as the economic slowdown and positive factors for corporate earnings such as a softer yen and fall in oil prices," said Yukio Takahashi, market analyst at Shinko Securities.

The benchmark ended up 146.04 points at 13,165.45. The broader Topix climbed 1.3 percent to 1,263.75.

DOLLAR WOBBLE

The dollar eased from a six-month high against the euro as the initial recovery in oil and commodity prices spurred investors to take profits on the U.S. currency's dramatic rally.

"The dollar seemed to overshoot the macro adjustments last week... with the massive liquidation in the commodity markets. But we're seeing some signs of stability there and second thoughts about how far oil will fall is allowing the dollar to take a breather," ING head of FX research Chris Turner said.

The euro fell to a six-month low of $1.4645 on trading platform EBS in early Asian trade before recovering to $1.4712 EUR=, up 0.1 percent from late Friday U.S. trade.

It has tumbled nearly six percent against the dollar in two weeks due to increasing investor concern that the slowdown in the U.S. economy will be replicated in Europe and globally.

The dollar index, which measures the dollar's value against a basket of six currencies, eased 0.1 percent to 77.046 .DXY from a seven-month high of 77.268 reached on Friday.

Two-year euro zone government bonds yielded a flat 3.990 percent EU2YT=RR while 10-year yields were flat near three-month lows at 4.136 percent EU10YT=RR.