* MSCI world equity index up 1.2 percent
* Europe shares up 1.7 percent
* Wall Street set for bouce
* Dollar falls
By Natsuko Waki
LONDON, March 10 (Reuters) - World stocks rose on Tuesday after three days of consecutive declines knocked them to 6-year lows, while government bonds slipped as fears grew governments may need to issue huge debt to fund economic stimulus packages.
Wall Street looked set to open robustly, but the dollar fell against major currencies.
MSCI world equity index rose more than 1 percent after hitting a six-year low on Monday.
European shares gained, with banking stocks taking the lead ahead of a U.S. hearing on mark-to-market accounting rules tentatively scheduled for Thursday and a positive Citigroup memo.
The pan-European FTSEurofirst 300 index of top shares was up 1.7 percent.
"After the market goes down for so many days, normally you see some sort of rebound. "What) we are seeing is a bounce," said Philippe Gijsels, strategist at Fortis Bank.
Mark-to-market accounting rules have required assets to be valued at current market prices and some banks have said it forces them to mark down assets to artificially low prices.
A U.S. House financial services subcommittee on capital markets has tentatively scheduled the hearing for March 12.
Also helping to calm fears about the health of the embattled financial sector was a Citigroup memo obtained by Reuters.
Citigroup's chief executive, Vikram Pandit, said the bank was profitable in January and February and was "confident about our capital strength" after tough internal stress tests, according to the memo. Earlier, Tokyo stocks fell 0.4 percent to a fresh 26-year closing low after drugmakers slid due to worries about their global competitiveness after Merck proposed to take over Schering-Plough.
Emerging stocks were up 2 percent.
DOLLAR SLIDE
The dollar fell against a basket of currencies, retracing much of the previous day's sharp gains.
"We've got the standard market dynamics regarding risk," said Jeremy Stretch, markets strategist at Rabobank in London. "With equity futures trading positively in the U.S. then risk appetite is looking a little firmer and the dollar is giving back its gains."
The dollar index, a gauge of its performance against six major currencies, fell 1.3 percent to 88.106, off last week's three-year high of 89.624.
The euro rose 1.3 percent to $1.2775, rebounding from a three-month low of $1.2455 hit last week according to Reuters data.
The dollar reversed early gains against the yen, last down 0.75 percent at 98.05 yen. The yen has fallen in the past month as Japan's economy grapples with diving exports and its worst recession of the postwar era.
On euro zone government debt markets, the 10-year cash Bund yield was up around 2 basis points at 2.968 percent.
But shorter-dated paper was flat with the interest rate-sensitive two-year Schatz yield at 1.275 percent. Bond yields move inversely with prices. (Additional reporting by Veronica Brown and Joanne Frearson; Editing by Victoria Main)
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