* China refutes report that reviewing euro bond holdings
* Bargain-hunters push U.S. shares up sharply
* Microsoft helps drive Nasdaq to a near 4 percent gain
* Oil rises more than 4 pct for 2nd straight day (Updates with New York close, adds comment, detail)
By Daniel Bases
NEW YORK, May 27 (Reuters) - The euro staged a broad rally and U.S. stocks jumped about 3 percent on Thursday, after China said Europe remains a key investment market for its foreign-exchange reserves.
The People's Bank of China said a Financial Times report that Beijing was concerned about its euro-zone bond holdings due to the European debt crisis was groundless. The report had driven the euro to a near four-year low on Wednesday and cut short a rally in U.S. stocks.
Stocks in Europe and emerging markets also jumped and crude oil prices jumped 4 percent as the perceived risk that China might change the composition of its foreign exchange reserves was reduced.
"Reports from the front suggested that investors might become frightened that China could do something drastic," said Douglas Peta, an independent market strategist in New York. "Getting some assurance that Chinese sales of European sovereign debt isn't imminent is making everyone feel better."
European shares closed above the 1,000 mark for the first time in just over a week while government debt prices fell as the bid for safety ebbed. Stocks in emerging markets also surged, with Brazil shares up more than 3 percent.
Bargain hunters picked through stock markets that had been beaten down by fears that Europe's debt crisis could spark a credit crunch and undermine the global economic recovery.
At the close of trade, the Dow Jones industrial average <.DJI> gained 284.54 points, or 2.85 percent, to 10,258.99. The Standard & Poor's 500 Index <.SPX> rose 35.11 points, or 3.29 percent, to 1,103.06. The Nasdaq Composite Index <.IXIC> climbed 81.80 points, or 3.73 percent, at 2,277.68.
Microsoft Corp
The PHLX Semiconductor index <.SOXX> gained 5.2 percent. Technology stocks had been battered recently due to the companies' high concentration of sales overseas.
Equity markets shrugged off a report showing the U.S. economy grew at a slower pace than previously estimated in the first quarter as business investment slackened. [ID:nN27259780]
The pan-European FTSEurofirst 300 index <.FTEU3> closed up 2.9 percent at 1,000.46 points. The index remains down around 10 percent from a mid-April peak on worries about Europe's debt crisis. MSCI's all-country world stock index <.MIWD00000PUS> also rose 2.9 percent.
Banks, which have been heavily hit by concerns about Europe's debt crisis, rose for a second straight day and were among the top risers.
BP
EURO GAINS
The euro gained 1.67 percent at $1.237 while the dollar fell against a basket of major trading-partner currencies, with the U.S. dollar index <.DXY> falling 1.05 percent at 86.208.
Stock market gains also supported the euro, while the yen
came under broad pressure as investors put on riskier bets
funded by cheap borrowing in the Japanese currency. The dollar
rose 1.38 percent to 91.06 yen
"We're following the equity markets. The dollar/yen started to gain some traction ... and that's dragging the whole risk trade up, which is giving another boost to the euro," said Tim O'Sullivan, chief dealer at Forex.com in Bedminster, New Jersey.
China has been trying to diversify its currency reserves to reduce the dollar's dominance in favor of the euro and yen to curb risks.
On Wednesday the euro collapsed 1.5 percent against the dollar after the Financial Times reported China's State Administration of Foreign Exchange (SAFE) was meeting foreign bankers because of concerns about its exposure to debt troubles in Europe.
SAFE, the arm of the central bank, manages China's $2.4 trillion in foreign exchange reserves -- the world's largest stockpile.
Separately, the Kuwaiti Investment Authority on Thursday denied a local media report that it, too, was reducing its exposure to euro zone investments. The sovereign wealth fund stated there was no change to its long-term investment strategy including Europe.
In response to the better risk appetite, safe-haven
benchmark 10-year U.S. Treasuries traded 1-12/32 lower, driving
the yield up to 3.35 percent
Euro zone government bond futures settled 39 ticks lower at
128.33, well off the session low of 128.34
Crude oil prices posted their biggest two-day gain since mid-August, as a forecast for an intense Atlantic hurricane season fueled fears of disruptions in U.S. supplies and spurred speculative buying. Oil had also risen more than 4 percent on Wednesday.
U.S. light sweet crude oil