* MSCI world equity index unchanged on the day at 221.66
* Two-year, 10-year euro zone govt yield record low
* Oil below $40 before recovering; dollar broadly weaker
By Natsuko Waki
LONDON, Dec 23 (Reuters) - Concerns about the deteriorating global economy drove euro zone government bond yields to record lows and pushed oil briefly below $40 a barrel on Tuesday, while European stocks rose, helped by gains in banks.
Third-quarter data showing the UK economy posted the worst quarterly decline since 1990 and New Zealand's economy contracted by its biggest amount in eight years emphasised the view that the global economy is worsening, which cuts energy demand and weighs on risky assets.
In light pre-Christmas trade, investors were torn between the gloomy outlook -- which favours safer government bonds -- and views that world stocks might have bottomed, having gained 18 percent from a 5-1/2 year low on Nov. 21.
"There's nothing on the macro front to suggest there's any let-up in the difficult conditions," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.
"Some of the tail winds from 2008 are likely to stretch into 2009... Many imagine that Q1 will be very tough."
MSCI world equity index was unchanged on the day. The FTSEurofirst 300 index of leading European shares rose 0.5 percent.
U.S. crude oil spent most of the early European session below $40, before rising slightly.
The two-year euro zone government bond yield fell to fresh record lows of 1.754 percent. The 10-year yield also hit a record low of 2.916 percent.
U.S. stock futures pointed to a firmer start on Wall Street after the grim corporate outlook hit U.S. shares on Monday.
World stocks are on track for the first monthly rise since May as investors priced in an economic recovery in 2009.
"The huge sums now being tipped in, coupled with low interest rates on both sides of the Atlantic, could begin a nasty period of future inflation, once we have lived through the remaining disinflation of the downswing in the first half of 2009," Evercore Pan-Asset Capital Management said in a note.
"This would mean buy equities for the first part of the recovery, but be ready to bail out again when the authorities realise they have overdone the monetary treatment."
The March Bund future was steady on the day.
The dollar fell 0.3 percent against a basket of major currencies. Emerging stocks fell 2.1 percent. (Additional reporting by Rebekah Curtis; Editing by Andy Bruce)