* MSCI world equity index up 0.4 percent at 297.16
* Dollar hits two-month peak vs yen; U.S. yields firm
* Oil rises; government bonds under pressure
By Natsuko Waki
LONDON, Dec 23 (Reuters) - World stocks rose for a third straight session on Wednesday and the dollar set a two-month peak against the yen after upbeat U.S. housing market data fanned expectations for a solid recovery in the U.S. economy.
Data showed on Tuesday that sales of previously owned U.S. homes jumped to the highest level in nearly three years last month, offering the latest evidence that the housing market -- the main trigger of the worst U.S. recession in 70 years -- is on the mend.
This fanned expectations that the Federal Reserve could raise interest rates sooner than its counterparts in the euro zone and Japan, sending the dollar higher and pushing U.S. Treasury yields to four-month peaks. MSCI world equity index rose 0.4 percent, on track to scoring one of the biggest annual gains in the past 20 years.
"Some fund managers are making sure they've got good equity positions for the end of the year. There's still momentum in there, and it may carry on into the new year," said Justin Urquhart Stewart, director at Seven Investment Management.
The FTSEurofirst 300 index rose 1 percent, with banks leading the gains. Emerging stocks gained 0.7 percent. U.S. stock futures were up around 0.4 percent, pointing to a firmer open on Wall Street later.
Ten-year U.S. Treasury yields rose as high as 3.773 percent . Bund futures fell 21 ticks. Ten-year euro zone government bond yields hit a one-month high of 3.294 percent.
The dollar rose as high as 91.87 yen. It was steady against a basket of major currencies.
Interest rate futures are pricing in the chance that the Fed may start raising rates in June.
Calyon says the correlation between the dollar index and U.S. interest rate expectations, based on the June 2010 three-month futures contract, has been a lofty 0.82 over the last month.
"The Fed may be talking about keeping rates low for an extended period, but the market appears to be listening more to the activity data than it is to the Fed rhetoric," the bank said in a note to clients.
U.S. crude oil rise 0.3 percent after data showed a sharp drawdown in U.S. crude stocks. (Additional reporting by Brian Gorman; Editing by Ron Askew)