World stocks rose on Wednesday and Greece's borrowing costs fell on the prospects of a Greek bailout, while safe-haven German government bond prices dipped and the euro eased after the previous session's hefty gains. Oil prices fell after data showed a large build in U.S. inventories but gold prices were flat, taking a pause from Tuesday's rise.

World equities measured in MSCI All-Country World Index <.MIWD00000PUS> rose 0.4 percent, with the pan-European FTSEurofirst 300 <.FTEU3> index rising 0.7 percent and Athens' benchmark <.ATG> up 4 percent. In Asia, Japan's Nikkei average <.N225> put on 0.3 percent.

A senior German coalition source said on Tuesday that European governments have agreed in principle to help heavily indebted Greece. However, a German government spokesman said a decision had not yet been reached.

European Union leaders are set to hold a special summit on the economy on Thursday.

The news also boosted the appeal for lower-rated euro zone government bonds, with the premia investors demand to hold them easing.

The Greek/German 10-year government bond yield spread narrowed 44 basis points to 276 bps -- its tightest in three weeks, and the cost of insuring against a sovereign debt default by Greece, Spain, Portugal and Italy dropped.

Some analysts said the effort to help Greece by European countries was positive for the financial markets, but Athens needed to take action to fix its financial problems.

It's highly unlikely that there will be any decisive bailout in the form of debt guarantees for Greece or any of the other peripheral economies. The onus is still very much on the Greeks to make necessary adjustments, said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin.

The country's public sector workers will strike on Wednesday in the first major test of Athens' commitment to push through austerity plans and tackle the debt crisis.

Concerns over Greece's fiscal problems as well as other peripheral euro zone countries, such as Portugal and Spain, have pressured the financial markets for weeks.

EURO SLIPS

The euro eased 0.2 percent against the dollar at $1.3756 after gaining 1 percent on Tuesday.

Analysts said the currency market was anticipating the outcome of the EU summit on Thursday to see whether a concrete plan for Greece would materialize, and that the euro may benefit if periphery bond spreads contract more.

The market will be very volatile, depending on if there is a package and if so, what that will be and how the market thinks it will impact the narrowing of spreads, said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.

If the recent widening of the periphery spreads stops or if they narrow, that should be positive for the euro given the market is extremely short (on the currency).

Yields on benchmark 10-year Bunds were up 3 basis points at 3.226 percent, while those on 10-year U.S. Treasuries were steady at 3.637 percent.

In commodity, oil prices eased to trade around $73 a barrel after data showed a large build in U.S. crude stocks, signaling persistently weak demand in the world's top energy consumer.

Meanwhile, ArcelorMittal , the world's top steelmaker, cautioned its markets would only recover slowly as it forecast higher shipments but lower selling prices in the early months of 2010.

(Additonal reporting by Atul Prakash, Emelia Sithole-Matarise and Naomi Tajitsu in London; Editing by Andy Bruce)

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