GLOBAL MARKETS-World stocks rise on spending hopes but bounce fizzles

* European, US stocks recover on govt spending hopes

* MSCI’s world equity index down 16% so far this week

* Italian govt debt hit again as death toll passes 1,000

* European shares steady on stimulus hopes

* World FX rates year-to-date (Updates prices, comments; changes byline, dateline from previous LONDON)

NEW YORK, March 13 (Reuters) - Stocks across the globe bounced back on Friday after historic drops, but hopes of more central bank stimulus and government spending went only so far and the comeback lost steam in a week of pandemic panic-selling across markets.

Volatility is expected to remain high, with sharp moves expected in both directions and across asset classes. The S&P 500 rose as much as 6.1% intraday on Friday and was last up 0.6%.

Stocks rose Friday on hopes of a coordinated stimulus package from world governments in response to the coronavirus pandemic, which threatens to slow down the global economy.

“What we’re headed for is a market that should begin to settle down (with) investors now expecting the government to get the economic plan in place and get it into law,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

The Dow Jones Industrial Average rose 118.69 points, or 0.56%, to 21,319.31, the S&P 500 gained 14.98 points, or 0.60%, to 2,495.62 and the Nasdaq Composite added 23.93 points, or 0.33%, to 7,225.73.

On Thursday, the Dow dropped 10%.

The pan-European STOXX 600 index rose 0.10% and MSCI’s gauge of stocks across the globe shed 0.17% after falling by the largest percentage on record on Thursday.

Italy and Spain meanwhile imposed trading curbs, banning short-selling of dozens of stocks.

“Markets are quite prepared for a period of falling output. The real fear is that you get second-round effects that result in a nastier, longer recession in the global economy,” said Investec economist Philip Shaw.

“That is going to be very difficult to escape from given the monetary pedal is very close to the floor in many jurisdictions.”

Earlier, Japan’s Nikkei fell 10% before paring losses to close 6% lower. Australia’s S&P/ASX200 had its wildest trading day on record, falling past 8% before surging in the last minutes of trade to settle 4.4% higher at the close.

MSCI’s broadest index of Asia-Pacific shares outside Japan ended less than 0.1% higher after falling more than 5% in morning trade.

The recovery came as central banks from the United States to Australia pumped liquidity into their financial systems.

U.S. Treasury yields rose as liquidity remained scarce even after the New York Federal Reserve’s action to make a massive amount of cash available.

Benchmark 10-year notes last fell 5/32 in price to yield 0.8673%, from 0.852% late on Thursday.

Justin Hoogendoorn, head of fixed income strategy and analytics at Piper Sandler in Chicago, said there were “very little bids” in the market.

“It really does scream volatility, scream that there’s a lack of liquidity in the marketplace,” he said.

Italy, where the COVID-19 death toll shot past 1,000 people, saw its borrowing costs spike by about 75 basis points this week - the most for any week since 1994.

Bond yields rose across the euro zone as investors’ expectations grew for fiscal stimulus in the region to combat the coronavirus pandemic.

Oil prices were set for their biggest weekly slide since the 2008 financial crisis and erased their Friday bounce, as the coronavirus outbreak threatened demand and crude producers promised more supply.

U.S. crude fell 0.89% to $31.22 per barrel and Brent was last at $33.16, down 0.18% on the day.

Major currencies stabilized after furious dollar buying overnight, but the yen felt the pressure of risk-on trading.

Market participants said signs of dollar funding stress persist and policymakers probably need to do even more.

“Underlying concerns regarding the economic fallout from the coronavirus on credit markets broadly remain,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

“It may be tempting to look for signs of a low in global stocks but with the underlying issue - the coronavirus - still unchecked, we think that is premature at this point,” he added.

The dollar index rose 0.946%, with the euro down 0.85% to $1.1088.

The Japanese yen weakened 2.28% versus the greenback at 107.10 per dollar, while sterling was last trading at $1.2451, down 0.95% on the day.

Reporting by Rodrigo Campos; additional reporting by Sanjana Shivdas in Bengaluru, Gertrude Chavez-Dreyfuss in New York, Karen Pierog in Chicago, Ron Bousso in London; Editing by Steve Orlofsky