* MSCI world equity index up 0.5 percent at 299.31
* Oil climbs above $77 a barrel
* Dollar's rally stalls
By Natsuko Waki
PARIS, Dec 24 (Reuters) - World stocks extended gains to their highest level in almost three weeks on Thursday while oil also gained as investors confident of a strong global economic recovery into 2010 chased risky assets in pre-Christmas trade.
The dollar's year-end rally stalled after weak U.S. housing data the previous day dampened optimism about the recovery in the domestic housing sector, the main trigger of the worst recession of the world's biggest economy in 70 years.
World stocks, measured by MSCI world equity index, are on track for scoring one of the biggest annual gains in the past 20 years.
"The trend in the market is still positive but we are at a crossroad. If the market is going decisively further up then you keep on being in that upward trend, technically," said Koen De Leus, economist at KBC Securities.
The MSCI index rose 0.5 percent on the day and has risen more than 30 percent since January.
The FTSEurofirst 300 index rose 0.1 percent while emerging stocks gained 0.9 percent.
Shanghai stocks jumped 2.6 percent. The Xinhua news agency quoted Commerce Minister Chen Deming as saying China's retail sales will grow more than 15 percent in 2009, the latest sign that the economy is on a brisk recovery path.
Markets in a number of European countries, including Germany, Italy, Denmark, Finland, Spain, Sweden and Switzerland, were closed on Thursday. Euronext markets will close at 1300 GMT, while London markets will close at 1230 GMT.
U.S. crude oil rose to $77.23 a barrel.
"The global economy continues to gain steam... In the absence of inflation pressures, the anaemic recovery in many advanced economies is likely to keep monetary policy highly accommodative, which should be supportive of risky assets," Goldman Sachs said in a note to clients.
The dollar fell 0.5 percent against a basket of major currencies, staying below this week's three-month peak.
It also dropped 0.4 percent to $1.4393 per euro and 91.21 yen.
U.S. Treasuries edged higher in Europe in holiday-thinned trade as investors braced for a series of auctions next week which will help them gauge demand for government debt.
The U.S. Treasury Department said on Wednesday it would issue $118 billion worth of two-, five- and seven-year notes next week, capping a record year for issuance.
Euro zone government bond markets were closed for the Christmas holiday.
(Additional reporting by Atul Prakash; Editing by Toby Chopra)