Forecast-beating results from U.S. bellwether Alcoa helped lift European stocks and draw global equities out of the red on Thursday, while currency markets reversed some of their recent cautious patterns.

The U.S. aluminum giant kicked off the latest U.S. earnings season on Wednesday by reporting a third consecutive quarterly loss, but it beat estimates by a large margin due to cost cuts.

Equity markets have been hit over recent weeks as second thoughts about the chances of a quick global economic recovery have risen.

The corporate earnings reporting season is likely to dominate bourses as it gets under way properly next week for what it says about how companies are weathering the global recession.

There has been nothing reassuring in macro data lately, so people are really hoping for good surprises on the earnings front, said David Thebault, head of quantitative sales trading, at Global Equities, in Paris.

World stocks as measured by MSCI were up about a quarter of a percent, heading for a gain after seven consecutive session of losses.

The FTSEurofirst 300 index of top European shares was up 0.7 percent, bouncing back from a 10-week low hit on Wednesday. Earlier, however, Japan's Nikkei closed down 1.4 percent on economic worries.

Investors were also eyeing a meeting of the Bank of England, which was expected to keep interest rates on hold at a record low of 0.5 percent but also looked likely to expand its 125 billion pound quantitative easing scheme to sustain attempts to lift Britain out of recession.

SLOW RECOVERY

Foreign exchange traders reversed some of their previous risk-aversion trades with Japan's yen falling after hitting a five-month high against the dollar on Wednesday.

The dollar also dipped against currencies other than the yen.

Sentiment was helped by a report from the International Monetary Fund late on Wednesday saying that the global economy is slowly starting to pull out of a deep recession, although the recovery will be sluggish.

The euro was up half a percent at $1.3952 and the dollar lost 0.6 percent to 93.37 yen.

Euro zone government bond futures retreated from two-month highs hit in after-hours trade the previous session, tracking moves in U.S. Treasuries which succumbed to profit-taking after a sharp rally.

Treasuries shot higher, pushing 10-year yields to seven-week lows, after an auction of 10-year paper attracted surprisingly strong demand late on Wednesday. That gave Bunds a lift in after hours trading, also prompting investors to book profits.

(Additional reporting by Blaise Robinson)

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