* ECB liquidity boost lifts equities, commodities * European banks borrow record 530 bln euros at ECB tender * Stocks, bonds pare early gains after revised US GDP data * Chicago PMI report also adds to investor sentiment * Oil prices recover after two days of losses By Herbert Lash and Richard Hubbard NEW YORK/LONDON, Feb 29 (Reuters) - The European Central Bank's latest offer of cheap loans lifted stocks and commodities on Wednesday, driving demand for higher-yielding currencies at the expense of the euro, but worries over the region's long-simmering debt crisis remain. A second reading of U.S. gross domestic product in the fourth quarter and a barometer of Midwest business activity that were better than expected added to the bullish mood, helping the U.S. dollar and the euro to pare earlier losses. GDP expanded at a 3 percent annual pace, a step up from the 2.8 percent pace that was reported in January, on slightly firmer consumer and business spending, calming fears of a sharp slowdown in growth early this year. It was GDP's quickest pace since the second quarter of 2010, the Commerce Department said. "It's two tenths of a percent. I don't think that's going to change the tone of the discussion," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York. Chicago Purchasing Management index rose to 64.0 in February, above consensus forecast of 61.5 and January's 60.2. U.S. government debt also pared early gains, with the 10-year U.S. Treasury note trading 11/32 lower, with yields rising to 1.98 percent. The benchmark U.S. bonds had been up 5/32 in price before the GDP report and Chicago PMI report. Stocks on Wall Street opened higher. The Dow Jones industrial average was up 42.84 points, or 0.33 percent, at 13,047.96. The Standard & Poor's 500 Index was up 5.24 points, or 0.38 percent, at 1,377.42. The Nasdaq Composite Index crossed 3,000 and then eased back to 2988.1. About 800 banks took 530 billion euros ($711.45 billion) at the ECB's second-ever offering of 3-year loans, essentially in line with market expectations. The liquidity boost, which comes to more than 1 trillion euros when combined with a similar offering in late December, is expected to support demand for riskier assets like equities, commodities and peripheral European bonds. The ECB has removed the chances of a major collapse in the banking system and effecting the entire economy, said Mouhammed Choukeir, the chief investment officer at British private bank Kleinwort Benson. "We're a bit more upbeat on risk as a result of this action by the ECB, but we're by no means thinking that the sovereign crisis in Europe is over," he added. The loan tender helped the FTSEurofirst 300 index of top European shares gain by 0.6 percent t 1,082.09 points, putting it back on track toward seven-month highs. The MSCI's world equity index was up about 0.6 percent after Asian stocks rose to a seven-month high earlier in the day. "The ECB's two long-term liquidity injections do not solve the underlying solvency problems in the euro area but they could push the crisis back into remission for a while if they give economic growth a boost," Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment said. "We moved overweight equities and commodities in our multi-asset funds in February for the first time since July 2011." Commodities like gold, silver and copper have surged this year as central banks around the world loosen monetary policy to support global economic recovery while inflation pressures remain subdued. U.S. FED IN FOCUS The market remained focused on U.S. Federal Reserve Chairman Ben Bernanke's semi-annual testimony on monetary policy before the House Financial Services Committee. Federal Reserve Chairman Ben Bernanke said on Wednesday the uneven U.S. economic recovery will have to pick up in order to quickly bring down an unacceptably high jobless rate. "The job market is far from normal," he said in comments prepared for delivery to the House of Representatives Financial Services committee, suggesting another round of Fed bond buying to stimulate growth is not off the table as policymakers assess whether job market gains will persist. The U.S. dollar has been weakening against a range of currencies since mid-January and has fallen substantially against the Japanese yen since the Bank of Japan eased policy unexpectedly on Feb. 14. However, the euro, which is also seen as a riskier asset, fell slightly against the U.S dollar to $1.3449 after the ECB tender result came out, trading just below a near three-month peak of $1.3487 set on Friday. Traders said that as the result was in line with expectations and had been more or less priced in, the euro's scope for gains was limited and the excess liquidity was likely to boost carry trades, in which investors use lower-yielding currencies to buy riskier assets, which would weigh on the euro. The improved risk sentiment had an immediate spillover into the peripheral European government debt market, with Italian two-year bond yields falling 24 basis points to 2.27 percent , their lowest level since late 2010. The benchmark 10-year Italian bond yield also extended its fall to the lowest since September at 5.27 percent . Oil prices recovered after sharp losses on Tuesday, with Brent crude rising over $1 a barrel higher to $122.80. Oil has risen sharply this year, raising concerns over global economic growth going forward. U.S. crude gained 38 cents to $106.93 a barrel.