* Steel stocks gain on talk of U.S. import curbs
* Dollar edges up from three-year lows
* Greek yields dip on ratings upgrade
* Oil near two-week highs
* Market holiday in the U.S.
By Ritvik Carvalho
LONDON, Feb 19 (Reuters) - World stocks were set for a sixth session of gains on Monday, extending a recovery from a selloff sparked by fears of creeping inflation and higher borrowing costs.
Gains were marginal, however, and scored largely in Asian markets, with Japan's Nikkei 225 .N225 up 2 percent. European markets gave up initial gains to turn lower, with the pan-European STOXX .STOXX index down 0.2 percent.
Market holidays in the United States and China kept trading slower than usual, but moves in the steel sector were pronounced after the U.S. government outlined proposals for curbing imports in Tenaris TENR.MI , Outokumpu OUT1V.HE and Arcelor Mittal MT.AS - which have facilities in the United States - were the biggest gainers in Europe, up between 1.7 and 3.1 percent .EU .
The MSCI world index, which tracks shares in 47 countries, was up 0.1 percent .MIWD00000PUS . The index has recovered nearly half its losses from late January to last week's low, posting a gain of 4.3 percent last week. That was its best weekly performance since December 2011.
The rebound came after a two-week rout that wiped more than $6 trillion off the value of global stock markets, triggered by worries of a rise in U.S. inflation.
The sell-off took place even as global growth helped to improve the corporate earnings outlook, bringing equity valuations down from highs hit earlier this year.
Just before the market ructions in late January, world shares were trading at 16.66 times their expected earnings, the highest levels since 2004, according to Thomson Reuters Datastream. They are currently at 15.33 times.
"Market confidence often attracts even more market confidence, and that is what we are seeing at the moment," said David Madden, markets analyst at CMC Markets.
"The cooling of the volatility index (VIX) has given some dealers the green light to buy back into the stock market, and while the fear factor keeps sliding, it is likely equity benchmarks will continue to push higher."
Equity investors have drawn some reassurance from a fall in the VIX .VIX - a measure of implied volatility on the S&P 500 index, also known as Wall Street's "fear gauge".
The index has remained below 20 for three days, last reading at 19.46. It spiked to a 2 1/2-year high of 50.3 two weeks ago, a jump that caused massive losses among investors who had bet equity markets would stay stable on a combination of solid economic growth and moderate inflation.
In bond markets, Greek government bond yields dipped after a ratings upgrade from Fitch that highlighted improving sentiment towards the indebted southern European state. Italian bonds came under pressure from jitters ahead of next month's election.
Bond yields across the euro zone were broadly higher in the absence of any fresh drivers. The holidays in Asia and the United States kept trade subdued GVD/EUR .
The U.S. 10-year Treasury yield fell to 2.87 percent on Friday. US10YT=RR It had risen to a four-year high of 2.944 percent US10YT=RR last week.
The two-year U.S. yield US2YT=RR rose to its highest level since 2008 last week as investors bet the Federal Reserve would raise interest rates at its March policy meeting.
The minutes of the Fed's last policy meeting, held amid the equities tumble on Jan. 30-31, are due on Wednesday. Besides the outlook on rates, markets will be keen to see what, if anything, the Fed makes of the gyrations in markets.
DOLLAR EDGES UP The dollar edged up from three-year lows against a basket of currencies .DXY .
The euro EUR= stood at $1.2418, backing down from Friday's three-year high of $1.2556.
The dollar traded at 106.49 yen JPY= , bouncing back from its 15-month low of 105.545 set on Feb 16 FRX/ .
The U.S. currency has been weighed down by various factors, including worries about widening U.S. trade and budget deficits and speculation Washington might pursue a weak dollar strategy.
There is also talk that foreign central banks may be re-allocating their reserves out of the dollar.
Commodities, which enjoyed gains as the dollar weakened, were steady as it edged up.
Oil prices hit their highest level in nearly two weeks, lifted by the recovery in stocks and tensions in the Middle East. O/R
U.S. West Texas Intermediate crude CLc1 rose 0.9 percent in Monday Asian trade to $62.21 per barrel.
Brent crude LCoc1 rose half a percent to $65.16 per barrel.
Gold was flat. XAU=
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