* World stocks gain, up 7 percent over nine sessions
* Euro holds recent gains vs dollar
* EU moves on bank stress tests help ease market jitters
By Jeremy Gaunt, European Investment Correspondent
LONDON, June 18 (Reuters) - World stocks rose for a ninth day running on Friday, extending a modest rally, and the euro held at three-week highs as the worst fears about euro zone sovereign debt receded.
Banks were among the biggest gainers in Europe as investors welcomed a commitment from EU policymakers to publish 'stress tests' revealing the true financial health of the region's biggest lenders.
MSCI's all-country world index gained about 0.2 percent, allowing U.S. and European shares to retrace all their losses for this year. The index has now rebounded around 7 percent since its June 7 close and gained more than 3 percent this week.
Its emerging markets counterpart outperformed and was up more than half a percent.
Investors have gradually been moving back into riskier assets this month after a sharp correction in May made valuations more attractive and key volatility gauges, such as Wall St's Vix index, almost halved from mid-May peaks.
Soothing investor tensions further, Spain's Treasury managed to sell 3.5 billion euros of debt on Thursday, which a government official said gave it enough liquidity to deal with a 24 billion euro ($29.4 billion) repayments crunch in July.
In addition, EU leaders and officials on Friday firmed up plans to publish bank "stress tests" next month as they looked to minimize adverse speculation that has been dogging the sector all year.
Societe Generale, BBVA and Credit Agricole up 1.4-2.7 percent in a higher bank sector.
"There has been a slight change in sentiment," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities, in London. "It looks like the (EU) policy effort is beginning to come to fruition. Apart from the financial stability programme, I quite like the idea of the stress test for the banks. Markets have been oversold, giving a buying opportunity."
European stocks were 0.3 percent higher at midday. Japan's Nikkei ended flat but had its biggest weekly rise in three months. The dollar was little changed against a basket of currencies and on the euro. U.S. stock futures were flat.
EASING THE STRESS
"Financial system concerns have eased, and some players are re-establishing carry trades, seeking higher-yielding assets," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, summing up the mood.
Fund tracker EPFR Global reported that more than $37 billion flowed out of money market funds during the latest week and into high-yield and emerging market bond funds and global equity funds. Emerging market equity finds saw the most net inflows in 10 weeks. The euro held at three-week highs, on track for its second straight week of gains. It was near $1.24 as investors shed short positions after solid demand at the Spanish government bond auction.
The single currency has gained more than 2 percent so far this week, pulling further away from a four-year low of $1.1876 struck on June 7.
On debt markets, two-year bond yields were 3 basis points higher at 0.546 percent, with 10-year yields up the same at 2.702 percent.
(Additional reporting by Mike Dolan, Brian Gorman, Tamawa Desai; editing by John Stonestreet)