GLOBAL MARKETS-Stocks hold up after Wells-Wachovia deal

* Europe stocks, U.S. stock futures up on Wells Fargo deal despite steep U.S. job loss

* MSCI world equity index down 0.4 percent at 283.20

* Washington's vote on bailout bill eyed

By Natsuko Waki

LONDON, Oct 3 (Reuters) - European stocks rose and Wall Street was set for a firmer as a move by Wells Fargo to buy Wachovia lifted investor spirits even as data showed steep job losses in the U.S. economy.

The U.S. economy lost 159,000 non-farm jobs last month, its sharpest decline in 5-1/2 years. Employment contracted for a ninth straight month, even before the labour market experienced the full shock from September's series of bank troubles.

However, world stocks edged away from an earlier three-year low while government bonds pared gains as the two U.S. banks unveiled the deal.

"The employment figures were weak in every important dimension. We've seen weaker data in history, but these look pretty decisively to be the beginning of something worse," said Pierre Ellis, senior economist at Decision Economics in New York.

The U.S. House of Representatives is to vote on a $700 billion bailout bill later in the day, with calls echoing around the world for passage of the bill which would allow the U.S. Treasury to buy illiquid debt from U.S. banks.

Justin Wiggs, equities trader at Stifel Nicolaus Capital Markets in Baltimore said: "Realistically, the focus is on the Wells Fargo-Wachovia deal ... All indications suggest (the bailout bill) is gaining speed in the House, which is important, because if it doesn't pass, it could get ugly."

The FTSEurofirst 300 index <.FTEU3> was up 0.4 percent on the day while MSCI main world equity index <.MIWD00000PUS> came off its low earlier, still trading down 0.4 percent.

According to Standard & Poor's, all 52 world equity markets declined in September, resulting in a $4.1 trillion loss. Since January, world equity markets have lost $10.5 trillion.

The dollar <.DXY>, on track for its biggest weekly gain in 16 years, held near a one-year high against a basket of major currencies.

Investors boosted their bets the Federal Reserve would cut interest rates later in October . The majority of them expect a half point cut, while there is a 14 percent chance of an aggressive 75 basis point rate cut.

"The current Fed is still a bit worried that easy policy will cause a surprising re-acceleration at a too high rate of inflation. But those concerns are probably easing significantly with these data and other markedly poorer economic data," Ellis said.

The December Bund future was up 50 ticks. Earlier, two-year euro zone government bond yield hit a 6-1/2 month low of 3.25 percent, 100 basis points below the benchmark interest rate.

Emerging stocks <.MSCIEF> lost 2.1 percent, hitting a two-year low.

U.S. light crude rose 0.4 percent to $94.39 a barrel while gold rose to $840.80 an ounce. (Editing by Mike Peacock)