By Natsuko Waki
LONDON (Reuters) - World stocks edged up from this week's four-month lows in cautious trade ahead of a euro zone monetary policy decision later on Thursday, supported by relative calm in vulnerable emerging markets.
The euro was steady to weaker as some investors bet that the European Central Bank could surprise markets with another interest rate cut to ward off the threat of deflation after last month's unexpectedly soft inflation reading.
The broad consensus is that there will be no change in the bank's record low benchmark rate of 0.25 percent.
"We have seen a hefty decline, but overall we should not be too worried because the fundamentals of the market have not changed much. The outlook for the equity market is staying constructive, but we need to be cautious," Gerhard Schwarz, head of equity strategy at Baader Bank.
"The ECB will likely refrain from cutting rates today, but they will make it clear that they stand ready to act, should things deteriorate from here. And that should give the market some reassurance."
The MSCI world equity index rose 0.2 percent, while European stocks followed Asia higher by gaining half a percent.
Relative calm in the capital-hungry emerging markets of Turkey, South Africa and India also lifted developing stocks, after a rout that drove safe-haven bids to U.S. Treasuries and the yen.
Emerging stocks rebounded 0.6 percent from this week's five-month lows while the Turkish lira and South African rand held above recent lows.
The banking sector will be in the spotlight after Credit Suisse missed expectations with a marginal uptick in fourth-quarter net profit, and its shares were down more than 2 percent.
"The earnings season hasn't been that bad so far, but people that have been hoping for a real pick-up in revenues will have to wait. We're not there yet," a Paris-based equity and exchange-traded fund trader said.
The euro was down slightly on the day at $1.3522 and 137.14 yen. The dollar rose 0.1 percent against a basket of major currencies. German bond futures were broadly steady.
The ECB is due to announce its decision at 1245 GMT. Some investors also speculate it could suspend its sterilisation programme - operations to soak up money put back in circulation from the ECB's buying of government debt.
At minimum, investors expect the ECB chief Mario Draghi to drop hints of his readiness to ease, which could help counter worries about dwindling stimulus from the Federal Reserve.
"I don't think the market is particularly long (on Bunds) so there's room for some sizeable gains there if they cut. The market is long of periphery but any signs of easing from the ECB should support them as well," one bond trader said.
The benchmark 10-year Treasury yield was steady at 2.6675 percent after weak U.S. manufacturing data earlier in the week pushed it to a three-month low.
Investors are looking for Friday's highly anticipated U.S. jobs report to show solid growth after encouraging private sector jobs numbers on Wednesday.
Economists surveyed by Reuters expect Friday's data will show that employers added 185,000 jobs in January.
U.S. crude oil rose 0.2 percent to $97.59 a barrel.
(Additional reporting by Atul Prakash and Marius Zaharia; Editing by John Stonestreet)
