GLOBAL MARKETS-Bank shares rally, oil hits eight-week high

* U.S. stocks manage gains, backed by banking shares

* KBW bank index <.BKX> closes at 16-month high

* FTSEurofirst 300 <.FTEU3> closes at seven-week high

* Yen falls on potential monetary easing measures

* Oil gains, gold falls (Updates with closing U.S. markets, adds comment)

By Daniel Bases

NEW YORK, March 10 (Reuters) - Financial firms led U.S. and European stock markets higher on Wednesday, with U.S. bank shares hitting a 16-month peak, while gyrating crude oil prices ended the day at an eight-week high.

Bank shares rallied on Wall Street amid bets an improving economy will stoke loan demand. And European equities hit a seven-week closing high, helped by positive U.S. economic data.

In the currency markets the British pound weakened after disappointing UK industrial production data, and the yen fell against most major currencies on bets the Bank of Japan will further ease monetary policy.

The U.S. dollar slumped against a basket of currencies, falling 0.22 percent at 80.411 <.DXY>.

"The natural conclusion investors are making is, if the economy is turning, financials are poised to do well," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus in Baltimore.

On Wall Street, the Dow Jones industrial average <.DJI> ended up just 2.95 points, or 0.03 percent, at 10,567.33, in a late push into positive territory. The Standard & Poor's 500 Index <.SPX> rose 5.16 points, or 0.45 percent, at 1,145.61. The Nasdaq Composite Index <.IXIC> rallied for a fifth consecutive day, climbing 18.27 points, or 0.78 percent, at 2,358.95.

The KBW bank index <.BKX> , a key gauge of U.S. bank stocks, closed at its best level since November 2008, up 2.16 percent at 50.06. Citi group rose 3.7 percent and Wells Fargo & Co gained 2 percent.

U.S. data showing wholesale inventories fell unexpectedly in January while sales hit their highest point in more than a year also boosted sentiment.

"There's demand out there and (businesses) are going to have to build up those inventories," Mata said.

Chip maker Intel Corp shares gained 1.2 percent to $21.19 and the PHLX semiconductor index <.SOXX> rose 2.16 percent to 358.04, its highest close since Jan. 13.

Oil shares ended mixed, while April crude oil prices on the New York Mercantile Exchange settled up 60 cents, or 0.74 percent, at $82.09 a barrel. Prices briefly broke through $83 a barrel before profit-taking parred gains.

World stocks measured in the MSCI All-Country World Index <.MIWD00000PUS> gained 0.56 percent to 302.23, its best showing in seven weeks, and up 66 percent from a low hit one year ago.

The pan-European FTSEurofirst 300 <.FTEU3> index closed up up 0.59 percent at 1,058.81 points. Energy shares contributed to gains, rising with crude prices during the European session.

Japan's Nikkei stock index <.N225> fell 0.04 percent while China's Shanghai Composite index <.SSEC> lost 0.66 percent, pressured by concerns over possible monetary tightening ahead of inflation data due later this week.

Spot gold prices fell $11.80, or 1.05 percent, to $1107.90.

LEADERS

In the financials sector, some of the U.S. firms bailed out by Washington staged a second day of gains. Short-covering was cited as the reason for American International Group's 10.59 percent gain. For more, click on [ID:nN10137680]

In Europe, banks rose with HSBC , Societe Generale , BNP Paribas , UBS and Deutsche Bank up 0.4 to 2.7 percent.

Some mergers and acquisitions activity also helped sentiment in the equity markets, including financials.

Private equity firm Apollo Management reached a deal to acquire Citigroup Inc's real estate investment division, Bloomberg reported.

Abbott Laboratories agreed to buy Facet Biotech Corp , which is jointly developing a multiple sclerosis drug, for $27 a share, topping a failed bid from Biogen Idec Inc . For details, see [ID:nN09182932]

YEN AND POUND WEAKEN

The Japanese yen gave up recent gains from corporate repatriation of offshore earnings amid increasing expectations the Bank of Japan will further ease monetary policy. Sources told Reuters that the Japanese central bank is leaning toward easing monetary policy again next week. [ID:nTOE62908T]

The euro rallied 0.9 percent against the yen trading around 123.57. Against the yen the greenback rose 0.61 percent at 90.51 while the euro rose 0.40 percent to $1.3654 .

The euro's gains were based more on yen weakness as the euro zone currency still carries the specter of the unresolved Greek debt crisis that limits buying enthusiasm.

Pressure has eased somewhat after Athens last week announced more austerity measures and secured 5 billion euros of debt funding from the market.

Sterling fell 0.14 percent to $1.4978. Britain's manufacturing output slumped in January at its sharpest monthly rate since last August. [ID:nLDE6290Y0]

British Prime Minister Gordon Brown said in a speech at Thomson Reuters in Canary Wharf in London that the economy was growing, but the recovery was still in its early stages and remained fragile.

Benchmark 10-year U.S. treasuries fell 4/32 of a point in price, yielding 3.72 percent . (Additional reporting by Ryan Vlastelica, Nick Olivari, Gertrude Chavez-Dreyfuss, Ellen Freilich in New York, Umesh Desai in Hong Kong, Dominic Lau, Tamawa Desai, Atul Prakash and George Matlock in London; Editing by Leslie Adler)