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GLOBAL MARKETS-Stimulus hopes, virus containment steps lift world stocks

Sujata Rao

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* Financial markets trying to shake off virus woes

* Equities draw investors on hopes for more China stimulus

* Oil markets worried about demand disruptions (Updates throughout, changes byline, dateline)

LONDON, Feb 5 (Reuters) - Expectations of more central bank stimulus lifted world stocks to their highest in more than a week on Wednesday, helping investors look past a mounting coronavirus death toll and policymakers' concerns for the disease's economic impact.

Already, billions of dollars pumped in by Chinese authorities to cushion the blow from the outbreak, along with stringent containment measures, have boosting mainland China indexes more than 1% and lifted Hong Kong shares .

European shares also turned around following a lackluster open, with a pan-European benchmark up 0.6%. Wall Street futures reversed earlier losses to rise almost half a percent. MSCI's global index rose 0.3% and was 2.3% above Monday's six-week lows.

Traders said European stocks also rose because a Chinese TV report said a research team at Zhejiang University has found an effective drug to treat people infected with the coronavirus. Reuters has not confirmed the veracity of the report.

"Traders have taken the view that the situation is now more likely to be under control and hopefully the spread of the health crisis will be stemmed," said David Madden, market analysts at CMC Markets. The report and the stimulus expectations offset at least partly the news that the virus's death toll had killed 500 and sickened 25,000.

China and other countries have imposed travel restrictions to contain the outbreak, hurting manufacturing and tourism in the world's second-largest economy and across its global supply chains.

Those concerns were reflected in signals from the Bank of Japan and the Monetary Authority of Singapore that they were ready to ease policy. BOJ Deputy Governor Masazumi Wakatabe pledged not to rule out any option, including lowering already- negative interest rates.

The Singapore dollar fell to a near-four-month low after monetary authorities said the currency had room to weaken to offset the effects of the virus. Markets responded by pricing in policy easing at the April meeting.

The People's Bank of China (PBOC) is also likely to lower its key lending rate on Feb. 20 and cut banks' reserve ratios, policy sources told Reuters.

"Clearly ... all the central banks are ready to act if necessary," said Justin Onuekwusi, a portfolio manager at Legal & General Investment Management.

"Lessons from the (2003) SARS outbreak also show the shock to the real economy tends to be temporary and markets do recover very quickly from such outbreaks," Onuekwusi said.

The media report on the breakthrough drug also boosted some of the assets that are shunned during risk-off times. The Australian dollar hit a one-week high and the Swedish and Norwegian currencies also strengthened.

Brent crude oil bounced 2% on the day as well, after losing 16% since Jan. 21 on fears the economic effects of the virus would curb demand. Crude also go support from expectations OPEC and its allies would cut output to prop up demand.

On bond markets, benchmark 10-year Treasury yields rose two basis points to 1.62%.

(Additional reporting by Stanley White in Tokyo and Karin Strohecker in London; editing by Larry King)