* Wall St extends gains for third day * Fed bond buying could be more aggressive than new timeline - Dudley * Prices of U.S. Treasuries rise after strong debt auction By Angela Moon NEW YORK, June 27 (Reuters) - Global equity markets and bonds extended gains on Thursday, showing further signs of stabilizing from a dramatic selloff as concerns receded that the Federal Reserve would begin to unwind its stimulus efforts earlier than expected. U.S. Treasuries prices rose, continuing to recover from last week's steep decline, as a sale of 7-year debt drew more aggressive bidding than markets had expected. Treasuries slumped last week after U.S. Federal Reserve Chairman Ben Bernanke said the Fed could pull back on its $85-billion-per-month bond buying program soon as the economy improves. But prices have largely firmed this week after the selloff took yields to their highest in 22 months. U.S. stocks rose for a third straight day, with the S&P 500 posting its best three-day run since January after three Fed policymakers sought to downplay the notion that the central bank would bring an imminent end to its accommodative monetary policy, known as quantitative easing. A number of upbeat U.S. economic reports on the housing sector and consumer spending further eased worries over whether the world's biggest economy could withstand the winding down of the Fed's monetary stimulus. "I think the Fed is trying to delicately prepare the markets for an eventual ending of QE3," said David Carter, chief investment officer at Lenox Wealth Advisors in New York. "The Fed has bent over backwards to introduce this huge program over the past few years to get the economy going. The last thing the Fed wants to do is pull the plug too fast and have the economy go down the drain." On Thursday, William Dudley, president of the Federal Reserve Bank of New York, said the Fed's asset purchases would be more aggressive than the timeline Bernanke had outlined if U.S. economic growth and the labor market prove weaker than expected. Dudley stressed that slowing the pace of the Fed's bond buying would depend not on calendar dates but on the economic outlook, which remained unclear. Equities have been volatile ever since Bernanke's comments last week. The benchmark S&P 500 dropped as much as 4.8 percent in the days following a June 19 statement from Fed policymakers. The benchmark index has now risen about 2.7 percent over the past three sessions after numerous Fed officials have sought to calm markets bothered by expectations of tighter monetary policy. In Treasuries trading, the benchmark 10-year note was up 18/32, the yield at 2.474 percent, compared with a price gain of 12/32 shortly before the seven-year debt sale. The 30-year bond rose 27/32 in price, its yield at 3.5316 percent after the auction, in which the Treasury sold $29 billion of seven-year notes at a high yield of 1.932 percent, the highest yield since July 2011. MARKETS RECOVER European shares ended higher, with the FTSEurofirst 300 index of top European shares rallying for a third straight day to close 0.7 percent higher at 1,157.42. The index, still down nearly 8 percent since late May, managed to cross back above a major resistance level representing the index's 200-day moving average, sending a positive technical signal. MSCI's world share index rose 1 percent after touching its highest in a week. The Dow Jones industrial average ended up 114.35 points, or 0.77 percent, at 15,024.49. The Standard & Poor's 500 Index was up 9.94 points, or 0.62 percent, at 1,613.20. The Nasdaq Composite Index was up 25.64 points, or 0.76 percent, at 3,401.86. With the yield on benchmark 10-year U.S. government debt appearing to have stabilized at around 2.5 percent, euro zone bonds from Germany to Greece were able to claw back some of the ground lost during the recent global selloff. Reflecting the recent rise in yields generally over the last few weeks, Italy paid its highest rate since March at a 5 billion euro auction of 10- and 5- year debt. But healthy demand boosted its bonds to top the list of euro zone periphery performers. Markets also focused on a deal hammered out by European authorities overnight designed to shift the burden of paying for bank bailouts away from taxpayers, although economists' opinions on the deal were mixed. In other asset markets, Brent crude oil futures rose for a fourth straight session, up 1.1 percent to settle at $102.82 a barrel. U.S. crude also rose, ending up $1.55 at $97.05 a barrel. The dollar slid against the euro. The euro was up 0.2 percent against the dollar at $1.3040, with the session low at $1.2999.