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GLOBAL MARKETS-Stocks rally on virus vaccine hopes, dollar gains

By Herbert Lash

(Adds U.S. market open, byline, dateline; previous LONDON)

* Nasdaq hits new high as stocks rally for third day

* Media reports about a virus vaccine boost sentiment

* U.S., European data also buoy investors

By Herbert Lash

NEW YORK, Feb 5 (Reuters) - The dollar gained and a gauge of global equity markets surged for a third day as expectations of more central bank stimulus and media reports that suggest scientists are closing in on a vaccine for the deadly coronavirus boosted sentiment.

U.S Treasury yields rose as traders welcomed early reports that a Chinese university team found a drug to treat those infected with the virus while UK researchers said they made a "significant breakthrough" in finding a vaccine.

The acceleration of euro zone business activity in January, indicating the worst may be over for the bloc's economy, while U.S. data showed an economy that is growing, albeit moderately, also boosted risk appetite and doused a bid for safe havens.

MSCI's gauge of stocks across the globe gained 0.72%, about 1.3% from a record high set almost three weeks ago. But the Nasdaq on Wall Street set a new high and the benchmark S&P 500 was about four-tenths of 1% from a fresh record.

Yousef Abbasi, global market strategist at INTL FCStone Financial Inc in New York said stimulus efforts by China's central bank and greater U.S. liquidity because of Federal Reserve operations in the repo market have boosted risk assets.

"I have a tough time justifying why this market is trading at 19 times earnings and why we have managed to snap back from any sell-off since October," Abbasi said, regarding U.S. stocks.

"But at this point, looking at this market, it almost feels like any hiccup further emboldens the global central bank put," he said, referring to central bank activity that increases market liquidity and encourages risk taking.

The Dow Jones Industrial Average rose 311.47 points, or 1.08%, to 29,119.1. The S&P 500 gained 26.62 points, or 0.81%, to 3,324.21 and the Nasdaq Composite added 24.13 points, or 0.25%, to 9,492.10.

In Europe, the pan-regional STOXX 600 index rose 1.19% and MSCI's gauge of stocks across the globe gained 0.72%, while emerging market stocks rose 0.55%.

IHS Markit's final euro zone composite Purchasing Managers' Index (PMI), seen as a good indicator of economic health, rose to a five-month high of 51.3 in January from 50.9 the previous month.

U.S. data also was encouraging.

The Institute for Supply Management (ISM) said its non-manufacturing activity index increased to a reading of 55.5 in January, the highest level since August. Data for December was revised slightly down to show the index at a reading of 54.9 instead of the previously reported 55.0.

Readings above 50 indicate economic expansion.

The dollar gained against the safe-haven Japanese yen and Swiss franc, as risk appetite rose on reports of a possible treatment for the coronavirus.

The U.S. currency also benefited from a private-sector payrolls report for January that surpassed market expectations, suggesting the world's largest economy was on a stable growth path and interest rate cuts were off the table for now.

U.S. private-sector payrolls increased by 291,000 in January, according to the ADP National Employment Report, far above expectations of an increase of 156,000 jobs. January's job gains were the largest since May 2015.

The dollar index rose 0.29%, with the euro down 0.38% to $1.1. The yen weakened 0.15% versus the greenback at 109.71 per dollar.

Overnight in Asia, stringent containment measures, along with the billions of dollars Chinese authorities have pumped into the economy, boosted mainland China indexes more than 1% . The bourses have clawed back half of the $700 billion in market capitalization that was wiped out during Monday's almost 8% rout.

Oil prices jumped 4% after media reports highlighted a potential vaccine, though the World Health Organization played down the news, saying there are "no known effective therapeutics" against the virus.

Brent crude oil futures rose $2.07 to $56.03 a barrel. U.S. West Texas Intermediate (WTI) crude gained $1.72 to $51.33.

Benchmark 10-year notes fell 11/32 in price to yield 1.637%. (Reporting by Herbert Lash Editing by Nick Zieminski)