By Natsuko Waki LONDON (Reuters) - World stocks jumped on Monday from last week's five-year low after policymakers around the world took new and drastic steps to rescue banks and prevent the global economy from sinking into recession. Oil jumped nearly 5 percent from its 13-month low while government bonds tumbled after Britain injected 37 billion pounds ($63.95 billion) buying into leading UK banks. Australia, New Zealand and the United Arab Emirates guaranteed all bank deposits. Germany, France and Italy are expected to unveil similar moves later. The interbank cost of borrowing three-month sterling and euro funds eased after the bank rescue measures. European central banks also said they would lend out as much U.S. dollar liquidity as commercial banks need in a further joint bid to tame money market tensions. "Market sentiment is a bit more positive, the government has grasped the nettle and committed to a rescue plan," said Keith Bowman, equity strategist at Hargreaves Lansdown. "There's still a huge amount of nervousness and volatility around but we do seem to have taken a step in the right direction with some coordination from governments and some definite action." MSCI world equity index rose 2.3 percent after tumbling 20 percent last week to the five-year low. European banking stocks rallied more than 5 percent. "Despite prospects of a worsening economic crisis, we believe that the nationalization of parts of the banking system could be viewed as the defining moment that marked the start of the end of the financial crisis," Philip Finch, global banks analyst at UBS, said in a note to clients. Not all the equity markets had a chance to react to rescue measures as financial markets in Japan were closed for a public holiday. GLASS HALF EMPTY? Money markets -- the source of the wider credit stress for more than a year -- also responded to new bailout plans to tackle the worst financial crisis in 80 years. Interbank rates for three-month sterling funds fell to 6.26875 percent at the London fixing while three-month euro rates fell to 5.29875 percent. However both rates remain up to 200 basis points above expected interest rates in January. "Is all of this enough to stop the rot, and even set us on the road toward a build-up in confidence? The glass can be seen as half-full or half-empty," says Ciaran O'Hagan, interest rate strategist at Societe Generale in Paris. Emerging stocks jumped 3.5 percent after hitting a three-year low. Equity trading is still suspended in Iceland where little trading is done on the crown currency. U.S. crude oil was up 4.5 percent at $81.20 a barrel. December bund futures fell as much as 100 ticks as capital seeking safety waned as stocks rallied. The dollar fell a quarter percent against a basket of major currencies while the euro rose 0.1 percent to $1.3576. (Additional reporting by Simon Falush and Emelia Sithole-Matarise; Editing by Ron Askew)

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