* MSCI world equity index hits 14-month high
* Wall Street set for positive start
* BofA move to repay taxpayer funds boost optimism
* Oil rises; dollar, yen under pressure
By Natsuko Waki
LONDON, Dec 3 (Reuters) - World stocks hit a fresh 14-month high on Thursday while oil also rose after Bank of America said it would repay $45 billion of taxpayer bailout funds in a move which injected optimism into the financial sector.
Wall Street also looked set for a positive start.
The European Central Bank left its key interest rates on hold at a record low of 1 percent as expected. It was expected later to reveal new staff forecasts which would underpin its gradual process of phasing out its financial crisis support.
The low-yielding dollar came under pressure, sending dollar-priced gold to record highs above $1,225 an ounce, as BofA news encouraged investors to chase equities, commodities and other risky assets.
Bank of America has launched the sale of $18.8 billion worth of securities, which are expected to be priced on Dec. 7, according to a term sheet obtained by Reuters.
World stocks have erased all the losses suffered after Dubai announced a standstill last week on billions of dollars of debt held by its conglomerate Dubai World, with investors shifting focus back to risk-friendly expectations that the world's central banks would keep interest rates low for some time.
"This is certainly one of the reasons for the positive market sentiment today," said Joerg Rahn, chief investment officer at wealth management company Marcard, Stein & Co in Hamburg.
"I'd also say that economic optimism is returning following some days of losses earlier in the month." MSCI world equity index rose as high as 302.45, its highest level since late September 2008, and was holding pretty close.
The FTSEurofirst 300 index rose 0.3 percent, while emerging stocks rose 0.8 percent.
The Markit survey showed the euro zone's service sector expanded for the third consecutive month in November, underpinning the recovery optimism, although the expansion was at a slower pace than reported early last week.
"We remain positive on European equities over our investment horizon of 12 months," Standard & Poor's European Investment Policy Committee said, adding that its 2010 year-end forecast implied a 12 percent upside from current levels.
"We believe that the credit markets are more likely capable than not of absorbing slated government debt issuance, given that long-term rates are still low and inflation expectations are stable."
U.S. crude oil rose 60 cents to $77.23 a barrel after slipping a day earlier on a larger-than-expected build in U.S. crude inventories.
German government bond futures, the euro zone benchmark, fell 31 ticks.
The dollar fell 0.3 percent against a basket of major currencies while the yen fell 0.6 percent to 87.88 per dollar . (Additional reporting by Christoph Steitz; Editing by Victoria Main) ((natsuko.waki@reuters.com, +44 207 542 6721, Reuters Messaging: natsuko.waki.reuters.com@reuters.net))