* MSCI world equity index up 0.9 percent at 192.09
* Hopes for interest rate cuts cushion economic gloom
* Government bonds rally; oil rises from 3-1/2 year low
By Natsuko Waki
LONDON, Nov 21 (Reuters) - World stocks rebounded from a 5-1/2 year low on Friday and oil rose above $50 as expectations of further interest rate cuts helped to cushion deepening gloom about the broader economy.
Wall Street was set for a firmer start, one day after the benchmark S&P 500 index fell to its lowest level since 1997 as troubles at Citigroup and U.S. automakers triggered fears about the wider economy.
However, hopes that the world's central banks would cut interest rates further -- with talk that China might lower borrowing costs later on Friday -- helped world stocks off an earlier 5-1/2 year low.
"The darkest hour is just before dawn," said Justin Urquhart Stewart, director at Seven Investment Management.
"The actions being taken are the key difference between the 1930s and now." MSCI world equity index was up 0.9 percent after hitting its lowest level since April 2003.
The FTSEurofirst 300 index also rose 0.2 percent. Emerging
stocks gained 2.5 percent. U.S. stock futures were up almost 3
percent
U.S. crude oil gained 1.7 percent to $50.23 a barrel, having hit a 3-1/2 year low below $49 earlier.
The December bund future fell 30 ticks, reversing earlier gains. The two-year U.S. Treasury yield touched a fresh record low of 0.9586 percent before rising.
In Asia, the 10-year Treasury note dropped a full point in price to yield 3.112 percent, after hitting 2.990 percent on Thursday -- its lowest level since the 1950s. The 10-year yield was trading at above 4 percent only in June.
"The main risk is the recession and that we are probably ahead of the worst year over the last century in terms of economic growth and that this will take its toll on many industries," said Kornelius Purps, fixed income strategist at UniCredit.
"We are probably only at the beginning of this poor performance in terms of economic growth and other factors will follow. This is quite worrisome and will keep a bid in the bond market."
The yen fell 1 percent to 94.62 per dollar after hitting a three-week high beyond 94 earlier. The dollar fell 0.5 percent against a basket of major currencies.
LICENCE TO CUT?
Talk of Chinese interest rate cuts complemented a rumour that authorities might soon announce the creation of a 300 billion yuan fund to support the stock market.
Euro zone interest rates are also expected to fall next month, and possibly earlier. A purchasing managers index survey showed on Friday that output of euro zone services and manufacturing business sank much further and faster than expected in November to record lows.
JP Morgan also said that bigger-than-expected declines in Canadian inflation also allow the central bank to cut interest rates more aggressively in December by as much as half a percentage point.
The Bank of Japan, however, kept its key policy rate unchanged at 0.30 percent on Friday. Governor Masaaki Shirakawa said more rate cuts could disrupt markets as they might cause various problems in ensuring smooth fund supply in money markets. (Additional reporting by Brian Gorman and Emelia Sithole-Matarise; Editing by Ron Askew)