* MSCI world equity clings to 2-1/2 month high
* Weak US consumer data offsets strong earnings
* Euro regains bid as equities shed losses
By Al Yoon
NEW YORK, July 27 (Reuters) - World stocks reached 2-1/2 month highs on Tuesday on strong corporate earnings, but weak U.S. consumer confidence limited gains and interrupted a brief rally by the euro against the dollar.
Equity markets were also supported by global banking supervisors' plans to scale back proposals to beef up bank capital and liquidity rules. It was a relief to investors who feared tough rules would hit the profitability of the financial sector. [ID:nLDE66Q0ON].
But investors began selling shares after a report showed U.S. consumer confidence fell in July to its lowest level since February as worries over the job market persisted.
"It is certainly disappointing, we had some positive data late last year and early this year and it seems like momentum has faded a bit," said David Sloan, an economist at 4Cast Ltd., in New York. "Clearly the big problem for consumers is jobs."
The data clouded the economic outlook, which was supported
on Tuesday by earnings from firms like Dow component DuPont and
Co
Two of Europe's top banks, UBS AG
DuPont rose 4.5 percent to $40.85, while U.S.-traded shares of UBS jumped 7.4 percent to $16.27 and Deutsche Bank gained 3.3 percent to $68.38.
Corporate performance in the second quarter had eased concerns that the global economy might slow into year end as fiscal stimulus runs out and austerity programs hit consumer spending. The Dow Jones industrial average struggled to make its fourth consecutive winning session, rising 9 points at midday in New York to 10,535.
In other U.S. indexes, the Standard & Poor's 500 Index <.SPX> slipped to 1,112. The Nasdaq Composite Index <.IXIC> fell to 2,286.
There were signs corporate profitability could outshine lingering economic weakness. In the United States, 78 percent of the 175 companies in the benchmark S&P 500 index <.SPX> have reported earnings above analyst expectations, according to Thomson Reuters data.
"It has taken investors a bit to catch on to the sentiment that earnings are in fact pretty good," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston, who added that the rally's pause was not a bearish sign.
The MSCI world equity index <.MIWD00000PUS> rose 0.26 percent to hit its highest level since May 14. The Thomson Reuters global stock index <.TRXFLDGLPU> gained 0.1 percent.
The FTSEurofirst 300 index <.FTEU3> rose 0.5 percent, and emerging stocks <.MSCIEF> added 0.64 percent, finding positive territory for the year.
In bonds, U.S. Treasuries suffered amid equity strength but narrowed losses after the gloomy consumer confidence report. Benchmark 10-year Treasury note yields rose 0.06 percentage point to 3.06 percent.
Only seven of 91 European banks failed health-check tests on their financial standing announced late last week -- five small Spanish banks, Germany's state-rescued Hypo Real Estate and Greece's ATEbank. No listed bank failed the tests.
"As expected, the transparency has helped, with peripheral yield spreads versus Germany moving lower," Barclays Capital said in a note to clients.
"It is interesting to note that this narrowing has been the most pronounced for Spain, the country with the largest number of 'failed' banks. We feel it is precisely this transparency that has helped the narrowing of the yield spreads."
In currencies, the euro
The dollar gained against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> rising 0.07
percent at 82.141. Against the Japanese yen, the dollar
In commodities, U.S. light sweet crude oil