* MSCI world equity index up more than 1.0 percent
* Yen backs down from record high of 76.25 per dollar
* European stocks, U.S. stocks higher; oil rises (Updates prices)
By Al Yoon
NEW YORK, March 17 (Reuters) - European and U.S. stocks rebounded from three days of selling on Thursday despite no resolution to Japan's nuclear plant crisis, while the yen edged off a record high against the U.S. dollar.
The yen's strength had markets speculating that Japanese
investors would sell overseas assets to bring home funds to pay
for reconstruction after Friday's earthquake and tsunami. The
yen hit a record high against the dollar of 76.25 yen
The Group of Seven finance leaders and central bankers planned to hold a conference call later on Thursday. Currency traders have interpreted remarks by some officials as indicating other central banks may give Japan their blessing to intervene to drive the yen lower against the dollar. [ID:nLDE72G10U]
Developments at Japan's quake-hit nuclear plant were a source of high anxiety for investors. Japanese military helicopters dumped water and a water canon was used on an overheating nuclear reactor, but radiation levels at the plant remained high. For details, see [ID:nL3E7EH18S]
"The absence of immediately worse news from Japan is interpreted by equity traders as a reason to stop selling and look for buying opportunities," Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee, said in a note to customers.
The MSCI world equity index <.MIWD00000PUS> gained 1.2 percent after hitting a three-month low earlier in the week. The index has now erased all of this year's gains.
Tokyo stocks ended down 1.4 percent <.N225> on Thursday. Earlier this week, Japanese stocks suffered their worst two-day selloff since 1987.
The Thomson Reuters global stock index <.TRXFLDGLPU> gained 0.7 percent. The FTSEurofirst 300 index <.FTEU3> rose 1.8 percent as a recent sell-off attracted bargain hunters.
The Dow Jones industrial average <.DJI> rose 127.95 points, or 1.10 percent, to 11,741.25. The Standard & Poor's 500 Index <.SPX> increased 14.40 points, or 1.15 percent, to 1,271.28 and the Nasdaq Composite Index <.IXIC> climbed 24.71 points, or 0.94 percent, to 2,641.53.
The index known as Wall Street's fear gauge, the VIX, <.VIX>, fell 8 percent to 26.99 on Thursday, a day after hitting its highest level since July.
Many traders, however, said there were still reasons to be cautious as Japan had yet to contain its nuclear problem that could exacerbate the natural disaster's economic toll.
"The drop has been violent, but the news flow remains very alarming," said David Thebault, head of quantitative sales trading at Global Equities in Paris. "There is short covering at this point, and we continue to see outflows.
"Stocks might look oversold on the short term, but they are not if we're heading into a bear market. The Japanese crisis could have severe consequences for the global economy," he said.
Emerging market stocks <.MSCIEF> fell 0.6 percent.
U.S. crude oil
The state-owned Bahrain Petroleum Co has partly shut down production due to staff shortages caused by political unrest in Bahrain, trade sources said. Bahrain arrested at least six opposition leaders, a day after its crackdown on protests by the Shi'ite Muslim majority raised fears of a regional conflict. [ID:nLDE72F2Q5][ID:nLDE72G110]
INTERVENTION THREAT
In New York, the yen traded at around 79.07 per dollar, off the record high that traders feared could trigger intervention by the Bank of Japan.
Japanese margin traders were cited as one of the main factors behind the dollar's fall against the yen, as the break of the yen's prior record high triggered automatic sell orders.
Traders also said foreign investors were scrambling to get
hold of yen to settle margin calls on bets on Japanese shares,
forcing them to turn to spot currency at times as well as
forwards
Japanese Finance Minister Yoshihiko Noda blamed speculation for the yen spike.
The dollar <.DXY> hit a four-month low against a basket of
major currencies. The euro rose 0.9 percent to $1.4026
Stabilization in Western stock markets reduced demand for the safety of U.S. government debt. Benchmark 10-year note yields rose 0.04 percentage point to 3.24 percent.
Gold