* European shares rise for 10th session running
* Forecast-beating euro zone PMIs, German IFO help
* Focus on University of Michigan consumer sentiment data
By Emelia Sithole-Matarise
LONDON, July 24 (Reuters) - World stocks extended gains to 9-month highs on Friday, denting demand for less risky government bonds after better-than-expected euro zone economic data bolstered optimism about economic recovery.
The euro advanced broadly and European shares climbed for a 10th session running after a better-than-expected German sentiment survey and improved data on the euro zone services and manufacturing sectors.
Gold rose back above $950 an ounce while oil scaled a three week high, advancing towards $68 on the back of the runup in global equities and gains in gasoline prices.
The macro data helped offset disappointing results from Microsoft late on Thursday and gloomy comments from Ericsson, keeping the bid for riskier assets alive, but some strategists the share market rally was due a pause.
"The rally over the past two weeks has been very fast and the market is now dangerously overbought. We're due for a pause, which would be healthy if we want to keep the upside trend alive," said Alexandre Le Drogoff, technical analyst at Aurel BGC.
"But I'm still cautious on the longer term. We haven't seen yet a reversal of the downtrend started two years ago."
The MSCI world equity index rose 0.3 percent to its highest since mid-October. It has risen more than 6 percent this week and since January has climbed by more than 14 percent, recovering some of the 43.5 percent decline suffered last year.
The pan-European FTSEurofirst 300 index rose 0.3 percent. U.S. stock futures pointed to a slightly firmer open on Wall Street a day after the Dow Industrials surged above 9,000.
BOND YIELDS SEEN UP
Gold rose back above $950 an ounce while oil scaled a three week high, advancing towards $68 on the back of the runup in global equities and gains in gasoline prices.
U.S. Treasuries and euro zone government bond prices retreated, pushing yields up with a record $115 billion in U.S. debt auctions due next week refuelling supply fears, weighing on sentiment. Bond prices and yields move inversely.
"The move out of bonds into stocks and the announcement of $115 billion in U.S. Treasury supply next week may keep yields skewed to the upside," said Kenneth Broux, market economist at Lloyds TSB in London.
The euro rose half a percent to $1.4233 by midsession in Europe, after climbing as high as $1.4245. Its gains helped to nudge the dollar index down 0.2 percent on the day.
The common currency also gained traction against sterling after figures showed Britain's economy shrank more than twice as fast as expected in the second quarter.
Data on Thursday, showing a rise in U.S. jobless claims, dampened optimism about the pace of recovery for the world's biggest economy, which had been buoyed earlier this week by broadly stronger-than-feared corporate earnings.
Investors will be looking to Friday's release of the final July Reuters/University of Michigan consumer sentiment index for the next clues on the economic outlook.
Asian stocks hit a 10-month peak on Friday, with Hong Kong vaulting back to levels last seen before the collapse of Lehman Brothers last September as investors rushed into equities following upbeat corporate earnings around the world. (Additional reporting by Blaise Robinson; Editing by Ruth Pitchford)