GLOBAL MARKETS-Euro falls again on debt fears, stocks rebound

* U.S., European stocks rise as risk appetite returns

* Oil jumps nearly 4 pct,

* Safe-haven bonds fall on risk appetite

By Manuela Badawy

NEW YORK, May 26 (Reuters) - The euro fell against the dollar for a third straight day on Wednesday on persistent fears over the euro zone's debt problems, even as renewed risk appetite boosted global stocks.

The euro slid more than against the dollar, stung by concerns about tighter credit conditions, but stayed above the 8-1/2 year lows hit on Tuesday. Jittery investors also drove up the price of gold as they sought safety in a hard asset amid the concerns about Europe and volatile currency markets.

But other markets shrugged off fears to charge higher. Oil prices rallied nearly 4 percent, climbing back above $71 a barrel as gains in equity markets overshadowed rising crude stocks. [ID:nSGE64P06D]

The euro, however, continued to stagger, also hit by concerns about tighter dollar funding conditions as three-month dollar interbank rates hitting a fresh 10-month high on Wednesday and a surprisingly lackluster German debt auction. For German debt auction see [ID:nLDE64P0VB].

"There is still a deeply negative sentiment toward the euro due to the debt situation in Europe, the issue with Spain over the weekend and how investors are bracing for the possibility that other banks in the region may follow suit and may need a bailout," said Joe Manimbo, senior market analyst at Travelex Global Business Payments in Washington.

Spain took over a small savings bank, CajaSur, over the weekend, and analysts said the move highlighted weakness in the European banking sector.

Although the euro in recent weeks has become a proxy for risk appetite, given Europe's debt crisis, and has tended to rise or fall in tandem with global stocks, that link was missing on Wednesday.

The euro dipped to $1.2222 against the dollar, down 1.21 percent on the day, according to Reuters data.

The index of world stocks rose 2.1 percent, and emerging stocks rose 2.7 percent, partially recovering Tuesday's 4 percent decline -- their biggest one-day fall in over a year.

Since global equity markets peaked on April 15, $4.2 trillion in market value has been erased from the MSCI all-country world stocks index. <.MIWD00000PUS>

On Wall Street, investors snapped up shares of beaten-down companies and were also boosted by a surge in U.S. durable good orders and new home sales for April.

The Dow Jones industrial average <.DJI> was up 76.93 points, or 0.77 percent, at 10,120.68. The Standard & Poor's 500 Index <.SPX> was up 10.42 points, or 0.97 percent, at 1,084.45. The Nasdaq Composite Index <.IXIC> was up 27.31 points, or 1.24 percent, at 2,238.26.

Banks and industrial stocks, among the worst-hit issues in the pullback, were among the day's top gainers, with Citigroup Inc climbing 3.7 percent to $3.92 and industrial conglomerate General Electric Co up 3.2 percent. Citigroup was upgraded to "outperform" by analysts at Oppenheimer, which said the stock was a good value. For details, see [ID:nSGE64P0FU]

"Investors are taking a break from the relentless gloom which has enveloped the markets since the month began," said Chris Ahrens, strategist at UBS Securities in Stamford, Connecticut.

EURO-TALK

U.S. Treasury Secretary Timothy Geithner urged Europeans on Wednesday to work for a globally consistent approach to financial reform as the European Union said it might go it alone with a plan to tax banks to pay for future rescues. [ID:nSGE64P04M].

European shares rebounded, and the pan-European FTSEurofirst 300 index <.FTEU3> closed up 2.4 percent at 972.17 points, a day after hitting nine-month lows. Miners were among the top gainers, lifted by improving risk appetite as copper prices rose.

Geithner's stress on coordination of new regulation appeared aimed chiefly at Germany, Europe's biggest economy, which stunned markets and angered its European Union partners by unilaterally banning some speculative financial trades last week. [ID:nLDE64O1HJ]

The dollar extended gains against the euro after U.S. durables goods orders and new home sales rose more than expected in April [ID:nN25139665].

A report showed sales of newly built U.S. single-family homes rose in April to their highest level in nearly two years as buyers rushed to benefit from a government tax credit. For details, see [ID:nN26186476]

Lennar Corp rose 2.5 percent to $17.58, while the Dow Jones homebuilder index <.DJUSHB> jumped 2.2 percent.

"I think the market really overreacted," said Nick Kalivas, vice president of financial research and senior equity index analyst, at MF Global. "You've basically seen a comeback from the lows and that has essentially created some positive momentum."

Manufacturing is leading the economy's recovery from the worst recession since the 1930s, but consumers are now stepping up to the plate as the labor market improves.

"We now have five quarters of increases, and that's a good sign of transitioning from a recovery to sustainable growth," said John Canally, investment strategist and economist at LPL Financial in Boston.

"It's too early to gauge the impact of the European crisis ... (we) probably have to wait until May or even July to see an impact."

U.S. Treasuries briefly extended price losses after the home sales rise in April, eroding the safe-haven luster of government debt.

The rise in risk appetite hurt Treasuries, and the benchmark 10-year U.S. Treasury note was down 21/32, with the yield at 3.234 percent. The 2-year U.S. Treasury note was down 3/32, with the yield at 0.8528 percent. The 30-year U.S. Treasury bond was down 37/32, with the yield at 4.1212 percent.

Treasuries prices were also undermined by traders looking for price concessions ahead of the auction of $40 billion of five-year notes on Wednesday afternoon. (Reporting by Gertrude Chavez-Dreyfuss, Chris Reese, Edward Krudy; writing by Manuela Badawy; Editing by Leslie Adler)