(Adds oil, gold settlement prices)
* Euro gains on Franco-German 500 euro fund plan
* WTI rallies on growing demand as lockdowns ease
* MSCI world index rise, Wall Street trades mixed
* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh
By Herbert Lash
NEW YORK, May 19 (Reuters) - The euro and European government debt rallied on Tuesday, lifted by a Franco-German proposal to fund grants for regions hit hardest by the coronavirus pandemic, while oil traded mostly higher on growing demand as countries eased business lockdowns.
A gauge of global equity markets also moved up, while Wall Street traded mostly higher and major European stock indices closed lower.
Gold prices rose as some investors sought the safe-haven asset on recession fears after a 30.2% decline in U.S. housing starts in April, the biggest percentage drop on record.
Permits for future construction tumbled, adding to data showing the pandemic will drive the deepest U.S. economic contraction in the second quarter since the Great Depression.
The euro rose 0.23% to $1.0937 and was up more than 1% against the dollar since the Franco-German plan for a 500 billion euro European Union recovery fund was announced on Monday.
"The Franco-German proposal represents a material step forward towards harnessing joint fiscal capacity to provide sustained fiscal stimulus to support the economic recovery," said Lee Hardman, currency analyst at MUFG.
The euro traded near a two-month high against the Swiss franc, and options markets showed fewer traders were betting against it.
Spanish and Portuguese government bond yields fell after a big drop in Italian yields on Monday.
Europe's STOXX 600 index slipped 0.61% after the worldwide surge in equity markets on Monday. But MSCI's gauge of stocks across the globe gained 0.43%.
On Wall Street, the Dow Jones Industrial Average fell 147.56 points, or 0.6%, to 24,449.81. The S&P 500 lost 3.09 points, or 0.10%, to 2,950.82 and the Nasdaq Composite added 43.11 points, or 0.47%, to 9,277.94.
Federal Reserve Chair Jerome Powell said in testimony before lawmakers that the Coronavirus Aid, Relief and Economic Security (CARES) Act passed in March was "critical" to the Fed's ability to expand credit to offset the economic blow from the coronavirus.
U.S. Treasury yields were lower. The benchmark 10-year yield slid 2.8 basis points to 0.7143%.
Crude oil prices traded higher most of the session but Brent eased toward the end.
U.S. crude rose 68 cents to settle at $32.50 a barrel, while Brent fell 16 cents to settle at $34.65 a barrel.
U.S. gold futures settled 0.6% higher at $1,745.60 an ounce.
Reporting by Herbert Lash, additional reporting by Olga Cotaga in London; Editing by Dan Grebler