World stocks broke a three-day losing run on Friday and hovered near their 12-month high, boosted by the Dow's return above 10,000 points, while the dollar briefly touched a new low for the year against the euro.

Solid earnings from several U.S. companies on Thursday suggested corporate profitability has stabilized and the recovery is gathering pace, lifting Wall Street <.DJI> <.SPX>.

The upbeat sentiment boosted crude and metal prices on Friday and sent safe-haven government bond prices lower.

However, Britain's economy contracted unexpectedly in the third quarter, squashing hopes of an end to the downturn and instead making the current recession the longest on record. The news sent sterling to a session low against dollar. World stocks measured in the MSCI All-Country Word Index <.MIWD00000PUS> put on 0.3 percent at 298.17 points, with the emerging market shares <.MSCIEF> rising 1 percent.

The global stock index has rallied 74 percent since hitting a low in early March and is up 31 percent for the year.

In Europe, the FTSEurofirst 300 <.FTEU3> advanced 0.6 percent, paring gains after the UK growth data. Japan's Nikkei average <.N225> edged up 0.2 percent.

The UK GDP data was very weak, but markets are more earnings driven at the moment, so if Microsoft comes in weaker than expected it will really hit sentiment, said Nick Serff, Market analyst at City index, in London.

The dollar <.DXY> recovered from its fresh low for the year against the euro after the market took aim at options barriers.

The Japanese yen, meanwhile, fell across the board as a number of domestic issues, such as expectations of rising government debt and revision of a privatization scheme, gave investors a reason to close long positions and resume yen sales.

The U.S. currency was up 0.5 percent to 91.74 yen, while the euro was up 0.03 percent to $1.5024.

A snapshot of German business morale showed an increase in optimism, although not quite as much as markets had expected.

Another survey showed euro zone services business grew at its fastest pace in 20 months in October, quicker than expected, while manufacturing activity expanded for the first time in over a year.

RISK PLAY

The VDAX-NEW volatility index <.V1XI> eased 3.4 percent to a one-week low. The lower the index, the higher is investors' appetite for risky assets.

In a further sign of the recovery, the world's biggest building materials group Saint Gobain kept its outlook for a better second half of the year despite a slump in third-quarter sales due to depressed construction activity.

The strong third quarter earnings also helped crude prices tick higher, holding above $81 a barrel, while base metal were also in demand.

Yields on benchmark 10-year U.S. Treasuries were up 3 basis points at 3.453 percent, and those on the euro zone's 10-year benchmark Bund rose 1 basis points at 3.319 percent.

Results from Microsoft and Whirlpool as well as U.S. home sales data for September will provide investors further evidence of the strength of the recovery in the world's largest economy.

(Additional reporting by Blaise Robinson in Paris, Simon Falush, Jamie McGeever and Swaha Pattanaik in London, and Kaori Kaneko in Tokyo; Editing by Ruth Pitchford)

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