GLOBAL MARKETS-Stocks knocked back as oil rally falters

(Updates prices, adds U.S (Other OTC: UBGXF - news) . stock futures)

* Mood turns as oil prices fail to extend gains

* British markets stable during talks on EU membership

* Yen hits 2-1/2-year high against euro

* Ten-year Bund yields below 0.20 pct

By Marius Zaharia

LONDON, Feb 19 (Reuters) - A faltering oil price rally pushed back European stocks and sent benchmark German Bund yields below 0.20 percent on Friday as worries about the global economic outlook returned to prominence.

The renewed aversion to risky assets pushed the Japanese yen to 2-1/2-year high against the euro. Sterling dipped as summit talks on changes in Britain's European Union membership dragged on through the night.

Brent futures fell 57 cents to $33.71 a barrel after ending the previous day down 22 cents. A record buildup in U.S. crude stockpiles stoked concern about global oversupply, outweighing moves by oil producers, including Saudi Arabia and Russia, to cap output.

The pan-European FTSEurofirst 300 was down 0.7 percent at 1,284.84 points, though the index stayed on course for its best week since January 2015. Britain's FTSE 100 (NasdaqGS: Z - news) was down 0.3 percent and U.S. stock futures pointed to a weak start on Wall Street.

The declines tracked Asian shares, which slipped from near three-week highs.

Assets perceived as safe havens did well, with German 10-year Bund yields falling 3 basis points to 0.18 percent. Ten-year U.S. T-note yields fell 2 basis points to 1.73 percent.

"The recovery in risk markets is still fragile," said BNP (Paris: FR0000131104 - news) Paribas rate strategist Patrick Jacq.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent and Japan's Nikkei dropped 1.4 percent. On the week, however, they were up about 4 percent and 7 percent, respectively.

The weekly jump came after gains in oil eased some of the deflation concerns in the developed world.

Oil prices rose more than 14 percent in the three days to Thursday after Saudi Arabia and Russia, supported by other exporters including Venezuela and Iraq, moved to freeze oil output at January's levels. Iran endorsed the plan without commitment on Wednesday.

If approved, it would be the first such agreement in 15 years among the Organization of the Petroleum Exporting Countries and non-OPEC members.

Iraqi Oil Minister Adel Abdul Mahdi said on Thursday that talks would continue between both camps to find ways to restore "normal" oil prices.

But data showing U.S. crude inventories rose by 2.1 million barrels last week, to a peak of 504.1 million barrels - the third week of record highs in the past month - held prices down.

BREXIT BACKDROP

At the EU summit, British Prime Minister David Cameron urged EU leaders to agree a deal that would allow him to campaign in a June referendum to stay in the EU. Fellow leaders and diplomats said an agreement seemed possible on Friday, but some said outstanding issues were proving tough to resolve..

Sterling was down 0.3 percent against the dollar.

"By the end of today, we should have a decent idea whether the UK is set to have a referendum on EU membership this year," said Simon Smith, chief economist at FxPro. "This matters for sterling, which has certainly shown strong signs of concern so far this year."

The yen reached its strongest since June 2013 against the euro at 125.095. The dollar was flat against a basket of major currencies.

Spot gold was down 0.9 percent at $1,221.42 an ounce. (Additional reporting by Dhara Ranasinghe, editing by Larry King and John Stonestreet)