* Stocks arrest slide as authorities tackle spread of virus
* Sterling rises sharply against the dollar
* Oil tumbles as Libya supply jitters dissipate
* World FX rates in 2020 tmsnrt.rs/2egbfVh (Updates death toll from virus; updates prices, market activity and comments)
By Rodrigo Campos
NEW YORK, Jan 22 (Reuters) - World stock markets bounced back on Wednesday, even as deaths from China's new virus rose to 17, while oil prices tumbled as a market surplus forecast alleviated supply concerns.
Worries about contagion of the virus and its effect on the global economy, particularly as millions travel for upcoming Lunar New Year festivities, had knocked the world's top equity markets off record peaks.
Official newspaper China Daily on Wednesday said 544 cases had now been confirmed in the country. Cases of the previously unknown, flu-like coronavirus have emerged as far away as the United States.
The outbreak revived memories of the Severe Acute Respiratory Syndrome (SARS) epidemic in 2002-03, a virus outbreak that killed nearly 800 people worldwide and hit Hong Kong's economy particularly hard.
Though Hong Kong confirmed its first case, measures are now in place to minimize public gatherings in the most affected regions.
"The call here is not that the virus is done or nipped in the bud by any means," said Kay Van-Petersen, global macro strategist at Saxo Capital Markets. "But there have been no big further reported outbreaks, and the response from the Chinese authorities has been very, very positive".
Germany's DAX touched an intraday record high but ended the day down 0.3%. Italy's benchmark fell after reports the leader of its co-governing 5-Star movement had resigned.
Italian government bonds saw their biggest sell-off in a month. Yields, a proxy of the country's borrowing costs, jumped as investors wondered whether the country's fragile coalition would collapse.
Across the Atlantic, the S&P 500 hit a record high boosted by waning fears over the coronavirus. An airline stock index rose 1.0% after falling as much as 3.8% on Tuesday.
IBM rallied 3.1% after better-than-expected full-year profits, while streaming giant Netflix warned the next few months would be tougher and its stock fell 3.1%.
The Dow Jones Industrial Average rose 31.05 points, or 0.11%, to 29,227.09, the S&P 500 gained 8.7 points, or 0.26%, to 3,329.49 and the Nasdaq Composite added 49.30 points, or 0.53%, to 9,420.11.
The pan-European STOXX 600 index lost 0.08% and MSCI's gauge of stocks across the globe gained 0.25%. Emerging market stocks rose 0.63%.
Overnight, the coronavirus developments boosted Shanghai stocks from an early 1.4% drop to end higher. Japan's Nikkei, South Korea's Kospi index and Hong Kong's Hang Seng all rose by more than half a percentage point.
Companies across China are handing out masks and warning staff to avoid the central city of Wuhan amid fears that the virus will rapidly spread as much of the population embarks on travel for Lunar New Year holidays.
The dollar index rose 0.05%, with the euro up 0.03% to $1.1085.
The Japanese yen strengthened 0.01% versus the greenback at 109.88 per dollar, while Sterling was last trading at $1.3124, up 0.59% on the day.
Oil prices fell sharply as traders figured a well-supplied global market would be able to absorb disruptions that have cut Libya's crude production.
U.S. crude fell 2.52% to $56.91 per barrel and Brent was last at $63.33, down 1.95% on the day.
U.S. 2-year, 10-year and 30-year yields were little changed but earlier hit fresh two-week lows after the Bank of Canada held interest rates steady and opened the door for possible easing amid an economic slowdown, rekindling worries about global growth.
"Going into this year, the belief was that global easing was over and things were looking better for the entire world," said Jim Vogel, senior rates strategist at FHN Financial in Memphis.
"For Canada to sort of change its outlook fairly quickly opens up the possibility that easing could occur elsewhere too," he added.
Benchmark 10-year notes last rose 1/32 in price to yield 1.7673%, from 1.769% late on Tuesday.
Spot gold fell 0.07% to $1,557.84 an ounce. U.S. gold futures gained 0.01% to $1,556.50 an ounce. Copper lost 0.92% to $6,103.50 a tonne.
Reporting by Rodrigo Campos, additional reporting by Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed in New York, Sruthi Shankar in Bengaluru and Noah Browning and Marc Jones in London; Editing by David Gregorio and Andrea Ricci