By Jeremy Gaunt, European Investment Correspondent

LONDON, Sept 6 (Reuters) - Encouraging news about the U.S.employment picture continued to spill over onto financialmarkets on Monday, lifting world stocks on hopes that a slipback into recession could be avoided.

The mood continued despite a relatively gloomy outlook fromOlivier Blanchard, chief economist at the International MonetaryFund, who told France's Le Figaro he expected weak growth inboth the United States and Europe.

Some investors, particularly in Asia, were catching up withFriday's U.S. jobs data, which was not as bad as some hadfeared.

The slowing of the U.S. economy has been one of the majorfactors holding investors back over recent months.

MSCI's all-country world stock index and its Thomson Reuterscounterpart were up more than 0.4 percent after a nearly 3.7percent gains for the MSCI last week.

Europe's FTSEurofirst 300 edged slightly higher, up around0.1 percent.

The jobs data was supportive, but utilities shares toppedthe gainers list after Chancellor Angela Merkel's coalitiongovernment agreed to a two-tier extension of the lifespans ofGerman nuclear power plants on Sunday.

Trading was also thin because U.S. markets are closed forLabor Day.

Japan's Nikkei earlier closed up 2.05 percent.

"After a string of disappointing numbers, the data last weekprovided an element of stability and helped increase riskappetite," said Henk Potts, equity strategist at BarclaysWealth.

"When you couple that with the outlook for corporates, itlooks pretty good."

The latest corporate earnings season has been relativelystrong in both the United States and Europe while merger andacquisition activity in August was the most robust for the monthsince 1999.

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The dollar was generally weaker with the euro rising for atime to its highest in three weeks before easing back.

"We are seeing some relief from fears about a double-diprecession in the U.S. helping risk sentiment and the euro," saidGareth Berry, currency strategist at UBS. "But whether thissentiment can be sustained or not is difficult to say."

The euro was down 0.1 percent at $1.2879, having risen to$1.2918 earlier in the day, its highest since August 12.

The dollar index, a gauge of the greenback's performanceagainst a basket of six major currencies, was flat and thedollar fell slighty to 84.26 yen, not far from a 15-year low of83.58 hit late last month.

Euro zone government bond yields fell after Friday'spost-jobs selloff. (Additional reporting by Atul Prakash and Anirban Nag)