Global stocks rise after Russia steps back; gains fragile

By Lionel Laurent

LONDON (Reuters) - Global stocks bounced after recent sell-offs and core government debt prices fell on Monday as markets saw a lowered risk of direct conflict between Russia and Ukraine while Middle East tensions appeared less acute.

The MSCI World Index, which tracks stocks from developed economies, was up 0.4 percent at 1052 GMT - though still down 3.9 percent from July highs as the prevailing market mood remained a cautious one.

The pan-European FTSEurofirst 300 index tracked Asia up 1 percent.

Both regions followed Wall Street's surge on Friday after Russia said it had finished military exercises close to the Ukrainian border, which the United States had criticised as provocative.

The Ukraine crisis has hit European markets particularly hard with the German blue-chip DAX index down 9 percent from its June peak, luring investors looking for attractively priced entry points into European equities.

"Fears over the conflict between Ukraine and Russia have receded for now, which is helping the market recover some ground," said Arnaud Scarpaci, fund manager at Montaigne Capital in Paris.

"But this is mostly a technical bounce which should last just a few days."

Corporate merger activity also buoyed markets, with UK infrastructure company Balfour Beatty up 2.9 percent after rejecting a second tie-up proposal from rival Carillion and Swiss dental-implant maker Nobel Biocare also up on reported takeover interest.

The increased appetite for risk led to a modest drop in safe-haven bonds, with German Bund futures slightly down. The dollar edged up 0.1 percent against a basket of six major currencies.

The cautious mood extended to the market's assessment of events in the Middle East, with investors keeping an eye on political infighting in Iraq and talks in Cairo between Israel and the Palestinians on ending the month-old Gaza war.

"There has been a slight easing in (global) geopolitical tensions but the underlying situation ... remains fragile," said Nick Stamenkovic, bond strategist at RIA Capital Markets.

Emerging markets also got a boost, with the MSCI Emerging Market index up 1.1 percent, as Russian stocks rose more than 2 percent while the rouble rose against the dollar.

However, Turkey's stock market gave up early gains after Prime Minister Tayyip Erdogan's victory in the country's first direct presidential election on Sunday. Investors weighed the economic risks associated with a likely further concentration of power in the former premier's hands.

U.S. crude oil and Brent crude futures were broadly flat, with the former ticking up at $97.65 per barrel and the latter ticking down at $104.81.

"It's very early to start celebrating and you've still got the negative effects of the sanctions (against Russia), which are likely to filter through over the coming months," said Michael Hewson chief market analyst at CMC Markets UK.

"But anything that ratchets down the tension is always going to be an opportunity to take profit on the shorts and maybe doing a little bit of bargain hunting."

(Reporting by Lionel Laurent; Additional reporting by Blaise Robinson, Marius Zaharia, Andrew Winterbottom and Francesco Canepa; Editing by John Stonestreet and Toby Chopra)