* World stocks hit two-week highs, bank shares up
* Political risk simmers after attacks in India
* Oil falls towards $53 with demand uncertain
By Ian Chua
LONDON, Nov 27 (Reuters) - Global stocks rose to their highest level in nearly two weeks on Thursday with European equities buoyed by sharp gains in Asia and the United States, dampening demand for safer assets such as government debt.
Renewed expectations that Washington will bail out the U.S. motor industry and China's aggressive interest rate cut on Wednesday helped to lift some of the gloom surrounding the global economy.
But a string of dismal U.S. economic reports this week left the dollar on a shaky footing while political risk emerged after attacks in India's financial capital.
At least 101 people have been killed with hundreds more trapped by Islamist gunmen in Mumbai after attacks on luxury hotels, hospitals and a tourist cafe.
Still, with U.S. financial markets closed on Thursday for the Thanksgiving holiday, analysts expect trading in Europe to be lacklustre. While stocks were eking out gains, analysts said the outlook was still bleak.
"It's going to be a bit of a nothing day, as we wait for Black Friday in the United States -- the day where all retailers go from red to black," said Justin Urquhart Stewart, investment director at Seven Investment Management. "If it goes like the UK, it could be a black Friday in the wrong sense."
The day after Thanksgiving, known as black Friday, is traditionally the busiest time for U.S. retailers and investors would undoubtedly be on the lookout for retail sales figures.
MSCI world equity index climbed 1.1 percent to 218.20, having earlier reached a peak of 218.33 -- a level last seen in Nov. 14.
The FTSEurofirst 300 index of top European shares gained 2.4 percent, Britain's FTSE 100 index put on 2 percent and Germany's DAX climbed 2.6 percent.
Bank stocks were among the best performers, with Standard Chartered rising 11 percent and Societe Generale gaining more than 5 percent. Earlier, Japan's Nikkei rose 2 percent, while MSCI's measure of other Asian stock markets climbed 2.2 percent.
Meanwhile, the dollar eased against a basket of major currencies with the dollar index slipping 0.3 percent.
"The greenback for long the beneficiary of safe haven flows has over the past couple of days been forced on the defensive as poor economic news weighed on the market," said Mitul Kotecha Head of Global Foreign Exchange Strategy at Calyon.
"Yesterday's data releases added to these woes, showing a huge drop in durable goods orders, a decline in personal spending, a weak Chicago PMI and another big increase in initial jobless claims. The latter points to a USD unfriendly non-farm payroll report next Friday."
BOND YIELDS UP
European government bond yields crept up as stocks gained ground, snapping recent declines that mirrored steep falls in U.S. Treasury yields.
On Wednesday, the U.S. benchmark 10-year yield hit a 50-year low below 3.0 percent after a flood of bleak U.S. economic reports spurred demand for safer government debt.
The 10-year euro zone government bond yield rose 1.7 basis points to 3.296 percent, off a near three-year low of 3.272 percent set on Wednesday.
Meanwhile, U.S. crude oil fell more than $1 towards $53 a barrel, reversing some of the 7 percent gains a day earlier as investors fretted about falling demand.
Recent data showed U.S. crude stocks rose sharply last week and U.S. September demand fell to its lowest level for any month in more than a decade.
Gold traded at $812.45 an ounce, near a six-week high of $830.10 set on Tuesday. (Additional reporting by Sitaraman Shankar; editing by David Stamp)