GLOBAL MARKETS-World stocks end 3-day losing run; sterling hit

* World stocks snap 3-day losing run, hover near 12-mth high

* Sterling down after shock contraction in UK economy

* German Ifo business climate index rises

By Dominic Lau

LONDON, Oct 23 (Reuters) - World stocks broke a three-day losing run on Friday and hovered near their 12-month high, boosted by the Dow's return above 10,000 points, while sterling fell after data showed Britain remained deep in recession.

The fall in sterling gave broad support to both the dollar and the euro, while solid earnings from several U.S. companies on Thursday suggested corporate profitability has stabilised, lifting metal prices and sending safe-haven government bond prices lower.

Euro zone data bolstered hopes of a durable recovery there but Britain's economy contracted unexpectedly in the third quarter, squashing hopes of an end to the downturn and instead making its recession the longest on record. The news sent sterling 1 percent lower against the dollar and euro. World stocks measured in the MSCI All-Country Word Index <.MIWD00000PUS> put on 0.3 percent at 298.01 points, with the emerging market shares <.MSCIEF> rising 1 percent. The global stock index has rallied nearly 74 percent since hitting a low in early March and is up 31 percent for the year.

U.S. stock index futures was flat to up 0.3 percent, indicating a slightly higher open for Wall Street ahead of Microsoft results and U.S. home sales data.

In Europe, the FTSEurofirst 300 <.FTEU3> advanced 0.5 percent. Japan's Nikkei average <.N225> edged up 0.2 percent.

But some analysts were cautious about the outlook.

"That's a clear sign that the positive momentum is losing steam and there is a real risk of a pull back, especially after a rally of 60 percent," said Koen De Leus, economist at KBC Securities.

"Getting into the market now looks to me pretty risky. If you go into the market now, see that you have something to fall back on, like stop-loss orders. See that you have your parachute ready."

The U.S. currency <.DXY> was up 0.4 percent to 91.67 yen, while the euro was up 0.1 percent to $1.5037 after hitting a 14-month high of 1.5061 in Asian trade.

The Japanese yen , meanwhile, fell across the board as a number of domestic issues, such as expectations of rising government debt and revision of a privatisation scheme, gave investors a reason to close long positions and resume yen sales.

A snapshot of German business morale showed an increase in optimism, although not quite as much as markets had expected.

Another survey showed euro zone services business grew at its fastest pace in 20 months in October, quicker than expected, while manufacturing activity expanded for the first time in over a year. [ID:nLAG003856]

RISK PLAY

The VDAX-NEW volatility index <.V1XI> eased 3.4 percent to a one-week low. The lower the index, the higher is investors' appetite for risky assets.

In a further sign of the recovery, the world's biggest building materials group Saint Gobain kept its outlook for a better second half of the year despite a slump in third-quarter sales due to depressed construction activity.

With a third of the S&P 500 companies having reported, 78 percent beat expectations, according to Thomson Reuters data. For technology companies, the beat was 90 percent for technology and 59 percent for financials.

The strong third quarter earnings also helped supported metal prices but crude prices was steady but still held above $81 a barrel -- near a 12-month high.

Yields on benchmark 10-year U.S. Treasuries was up 3 basis points at 3.451 percent, and those on the euro zone's 10-year benchmark Bund rose 2 basis points at 3.332 percent. (Additional reporting by Atul Prakash and Jamie McGeever in London; Editing by Victoria Main)