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By Elizabeth Howcroft
LONDON, June 19 (Reuters) - The dollar recovered overnight losses and European stocks rose on Friday, on track to end the week stronger, as investors re-evaluated the optimism that saw markets rally in May and early June.
New COVID-19 infections continue to climb, making markets cautious about the possibility of a second wave of the virus. Mainland China reported 32 new coronavirus cases by the end of June 18, 25 of them in the capital city, Beijing. Infections also rose in the United States this week.
The MSCI world equity index, which tracks shares in 49 countries, was up 0.2% at 1050 GMT, its third day in a row of broadly flat trading.
European stocks rose, with the Stoxx 600 up 1%.
"We’re a little bit stuck now in this risk-on risk-off mood," said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.
"We had very much of a risk-on move in May and early June, this has reversed now and the big question is how much should the market reverse it," he said.
Oil rose to above $42 a barrel on Friday, adding to gains in the previous session, after OPEC producers and allies promised to meet supply cuts and signs of demand, hit by the coronavirus crisis, recovering.
Brent crude rose $0.86, or 2.1%, to $42.37 by 1100 GMT, the highest since June 8. U.S. West Texas Intermediate (WTI) crude climbed $1.01, or 2.6%, to $39.85.
The dollar slipped overnight but recovered those losses in London trading and was still heading for its best week in a month. Against a basket of currencies it was at 97.494, up less than 0.1% on the day.
European Union leaders began the process of approving a 750 billion-euro stimulus package for their coronavirus-ravaged economies on Friday. The leaders are still divided over its final size and terms, but officials and diplomats hope a deal will be struck in July.
European Central Bank President Christine Lagarde told EU leaders during the meeting that their economy was in a "dramatic fall" and called on them to agree their recovery plan quickly, diplomatic sources and officials said.
"There’s little hope for an agreement on the recovery fund any time soon," said Marshall Gittler, head of investment research at BDSwiss.
"The issue will have to be thrashed out at a later summit, possibly next month, although one hasn’t been scheduled yet. Remember that agreement has to be unanimous on these issues, so even tiny Austria can in effect veto the German-French proposal."
The euro held near two-week lows at $1.12005, broadly flat on the day. It rallied when the fund was first proposed by France and Germany last month but has slipped this week as uncertainties mounted over whether the plan can be delivered.
Demand for safe German government debt was little changed, with the benchmark 10-year Bund yield at -0.411%.
Reporting by Elizabeth Howcroft, editing by Larry King