World stocks briefly hit a two-week peak on Monday as expectations rose that U.S. corporate earnings this week would point to a sustainable economic recovery in the world's biggest economy.

The euro slid as jitters grew ahead of the results of European bank stress tests due later this month and the yen slipped after Japan's ruling coalition lost its upper house majority in Sunday's election, putting the government's policies to deal with the country's massive debt at risk.

Wall Street had its best week in a year last week ahead of this week's key earnings, which include Alcoa , Intel , JP Morgan , Google , Bank of America, GE and Citi .

In view of the concerns that the markets and investors have had about the loss of economic momentum, these results will be pretty important. If these earnings are good, this market is going to fly, said Mike Lenhoff, chief strategist at Brewin Dolphin.

Some of the pre-announcements have been quite encouraging. So it looks as if it's going to move in the right direction. MSCI world equity index <.MIWD00000PUS> hit a two-week high of 280.79 before erasing gains to stand down 0.1 percent.

The Thomson Reuters global stock index <.TRXFLDGLPU> was down 0.1 percent.

The FTSEurofirst 300 index <.FTEU3> ticked higher on the day while emerging stocks <.MSCIEF> rose 0.15 percent.

Thomson Reuters data shows earnings of S&P 500 <.SPX> firms are expected to grow 27 percent in the second quarter from the previous three months, after expanding at a rate of 58.3 percent in the January-March period.

So far, with 26 of 500 firms already reported, 69 percent of earnings are coming above expectations.

EURO WOBBLES

The euro fell half a percent to $1.2577, pulling away from a two-month high as concerns about the effectiveness of stress tests on European banks prompted investors to trim long positions in the single currency.

Bund futures rose 23 ticks for the same reason. The results of European bank stress tests are due on July 23.

Only a test that takes into account all potential outcomes will convince the financial markets, Commerzbank said in a note.

Even though a default of a euro-area member state is very improbable, it should be part of the test scenario. After all, a dire scenario is a key element of a stress test, which aims, in the end, to give an impression of the worst possible outcome.

The dollar fell 0.3 percent to 88.90 yen after Prime Minister Naoto Kan's Democratic Party of Japan lost its upper house majority in Sunday's election less than a year after it swept to power promising change.

The Democrats still control the more powerful lower house, but they need help from other parties to push bills through the upper house as they struggle to end decades of stagnation in the world's No.2 economy and to cut the massive public debt.

The dollar <.DXY> rose half a percent against a basket of major currencies.

U.S. crude oil fell 0.6 percent to $75.66 a barrel.

(Additional reporting by Atul Prakash, editing by Mike Peacock)

Japan