* Oil prices give up gains, fall 3 percent
* European stocks trim early falls
* Dollar down 0.2 pct vs euro and 0.3 pct vs yen
* German business sentiment hits 11-month low
* Focus turns to Fed meeting on Tue and Wed
(Updates)
By Dhara Ranasinghe
LONDON, Jan 25 (Reuters) - Oil prices tumbled 3 percent on
Monday and dragged the dollar down, but world stocks clung onto
gains in a sign of stabilisation after a horrendous start to the
year.
Crude oil prices fell 3 percent as Iraq announced
record-high oil production feeding into a heavily over supplied
market, wiping out much of the gains made in one of the
biggest-ever daily rallies last Friday.
That tumble briefly weighed on stocks, which recovered
ground as hopes of further monetary stimulus by major central
banks helped take the edge off the bearish sentiment that has
dominated since the start of the year.
The MSCI world equity index .MIWD00000PUS was up 0.1
percent, almost 5 percent above 2-1/2 year lows hit last week.
Asian stocks .MIAPJ0000PUS rose 1.5 percent and moved
further away from last week's four-year low, while U.S. stock
futures traded just 0.1 percent lower ESc1 .
"Risk-asset markets have received a boost from the European
Central Bank hinting at stimulus last week, and investors are
also looking at whether the fall in stocks has run its course,"
said Philip Shaw, chief economist at Investec in London.
Global markets slumped at the start of the year on fears
that a slowdown in China would spread to the rest of the world
economy, while oil prices sank to 13-year lows.
German business morale fell to an 11-month low in January, a
survey showed, suggesting growing concern among company
executives in Europe's largest economy.
The Ifo survey reading of 107.3 compared with 108.6 in
December and was well below 108.4 forecast in a Reuters
poll.
IN FOCUS
Market turbulence sets the backdrop for a meeting of the
U.S. Federal Reserve on Tuesday and Wednesday, while Bank of
Japan policymakers gather on Jan. 28-29.
Last week, the European Central Bank signalled it could
deliver further monetary stimulus, raising hopes that other
central banks might take the same path.
The market rout meanwhile could throw the Fed off its course
of gradual interest rate hikes.
"Attention will now turn to the U.S. Federal Reserve and the
Bank of Japan's latest policy decisions later this week, with
the main focus on the U.S. central bank in the wake of last
month's historic decision to raise rates for the first time in
nine years," said Michael Hewson, chief market analyst at CMC
Markets.
Stock markets in London .FTSE , Frankfurt .GDAX and Paris
.FCHI reversed early falls to trade virtually unchanged on the
day.
Emerging market stocks extended their gains and hit a 10-day
high, while in Asia Shanghai stocks .SSEC added 1 percent and
Tokyo's Nikkei .N225 , which slumped to a one-year low last
week, rose 1.2 percent.
DOLLAR SLIPS
The dollar edged down against other major currencies as
renewed selling on oil markets drove investors into their
current safe havens of choice, the euro and yen.
The dollar slipped 0.3 percent to 118.40 yen JPY= , moving
away from a two-week high touched on Friday at 118.88. The euro
firmed 0.2 percent to $1.0813 EUR= , after losing 0.8 percent
on Friday.
The Russian rouble and other currencies sensitive to
movements in commodity prices, weakened. The rouble was 2
percent weaker against the dollar at 79.80 RUB= , while the
Australian dollar was down 0.3 percent to $0.6982 AUD=D4 ,
backing off a nine-day high of $0.7046 on Friday.
Brent crude oil futures LCOc1 fell 85 cents to $31.34 a
barrel. U.S. crude CLc1 declined $1 cents to $31.18 a barrel.
Iraq's oil ministry told Reuters on Monday that oil output
reached a record high in December, putting oil prices under
renewed pressure after signs of recovery last week.
U.S. Treasury yields were down 1.7 basis points at 2.03
percent, as the fall in oil prices leant some
support to safe-haven debt.
Elsewhere, Greek two-year government bond yields fell 3
basis points to 13.54 percent and the stock market
rose 1 percent .ATG after Standard & Poor's raised Greece's
rating by one notch to B minus on Friday.