World stocks regained composure on Thursday after an almost week-long sell-off and the yen's rally fizzled out as investors dipped their toe back into risky assets, encouraged by a rebound on Wall Street.

Over the past week, concerns had grown that the fallout from the U.S. subprime mortgage sector could raise borrowing costs for companies, squeeze liquidity and spread to the wider economy.

This weighed on investor risk appetite, whose high levels had pushed stocks to a record high earlier in June and drew yen-funded capital into high-return assets.

However, investors pushed subprime concerns to the sidelines for now after a jump in oil prices above $70 a barrel buoyed energy stocks. Stabilizing equities encouraged flows out of the yen again, and a weaker yen aided Japanese exporter shares.

(The equity rebound has) made the market say: if there's no concerns on equity, there is no concern on risk, at least in the short term, so they are buying carry again, said Geoff Kendrick, currency strategist at Westpac.

The FTSEurofirst 300 index of top European shares was up 1 percent. It hit a two-week low on Wednesday, having hit a 6-1/2 year peak earlier in June. The MSCI world equity index was up half a percent.

Tokyo stocks ended the day up almost half a percent. MSCI's measure of Asia-Pacific stocks ex-Japan rose 1.2 percent, while its energy sub-index rose 1.4 percent.

The Volatility Index, a key fear gauge, dropped back on Wednesday after hitting a three-month high.

European credit spreads narrowed, with the iTraxx Crossover index -- made up of 50 mostly junk-related credits -- tightening to 219 basis points.

EUROPEAN, U.S. RATES

Concerns about growth-damaging interest rate rises in Europe still remained with the Bank of England and European Central Bank seen raising interest rates in the next few months.

It's always a handicap for equities when you have a re-pricing of risk, widening credit spreads and rising interest rates, said Bert Jansen, equity strategist at Exane BNP Paribas in Paris.

You enter a phase where it's getting tougher for the bull market. It's the beginning of the end of easy money.

In the United States, however, softer data in the last couple of weeks has revived market expectations the Fed may cut rates this year. But later on Thursday the Federal Reserve is expected to leave rates steady at 5.25 percent and maintain its stand of curbing elevated inflationary pressures.

We expect ... the statement to acknowledge better growth data and remain benign with regards to inflation risks. Such a result would signal a bias for the Fed to remain on hold and should be supportive of general risk appetites and FX carry trades, JP Morgan said in a note to clients.

Euro zone government bonds tracked U.S. Treasuries lower as a rise in equities reversed some of the recent flight-to-quality flows into debt. The September Bund future was down 32 ticks.

London Brent crude was up a quarter percent at $70.71 after U.S. gasoline inventories fell.

Bargain hunters returned to gold, which rose to $644.50, after its decline to a 3-1/2 month low on Wednesday.

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