(Adds details, updates prices)
* MSCI world index up 0.5%
* Oil volatile after big weekly drop
* Dollar struggles, gold up
* U.S. stock futures rise
By Danilo Masoni
MILAN, June 27 (Reuters) - World shares extended their gains on Monday, building on Friday's strong Wall Street close, while oil prices came off their peaks, improving sentiment and tempering concerns of prolonged inflation.
Strong advances in European equity markets and a rally across Asia after China further eased COVID-19 restrictions drove the MSCI's benchmark for global stocks up for a third session, rising around 0.5%.
Investors hope oil prices' slide from three-month peaks hit earlier in June will ease price pressures and allow the U.S. Federal Reserve to tighten policy less aggressively than initially feared, moderating recession worries.
"We think there are more chances of seeing oil prices going lower simply because of easing demand from the U.S., Europe and China due to the slowdown in the economy. This in turn should help reduce expectations on inflation at least for the very end of this year," said Jérôme Schupp, fund manager at Prime Partners in Geneva.
"The next Fed meeting in July will be quite important. We should see the Fed continue to hike rates, probably by 75 basis points. But more crucial will be the new message from (Fed Chair Jerome) Powell. Maybe he'll say they're happy with the new level of rates," added Schupp.
Despite a strong three-day rebound which has helped the MSCI world benchmark get further away from lows hit earlier this month, the index remains down more than 20% from a record-high close in January, a fall that is commonly described as a bear market.
Traders said oversold market conditions and month-end portfolio rebalancing also contributed to the bounce, although they expected more volatility ahead as the second-quarter earnings season approaches.
MSCI's broadest index of Asia-Pacific shares rose 1.5%. Beijing said on Saturday it would allow schools to resume in-person classes and Shanghai's top party boss declared victory over COVID-19 after the city reported zero new local cases for the first time in two months.
The pan-regional STOXX 600 benchmark added 0.6% as the easing of COVID restrictions in top metals consumer China boosted miners. Meanwhile, U.S. stock index futures extended their gains with S&P 500 e-minis gaining around 0.4%.
"Volatility is likely to remain elevated until we see convincing evidence that inflation is moderating, recession risks are receding, and geopolitical threats - especially from curbs on Russian energy exports - are declining," wrote Mark Haefele, CIO at UBS Global Wealth Management.
According to UBS, the S&P 500 would end the year close to current levels of 3,900 points in a "soft-landing" scenario for the economy. But if worsening macro data leads to a downgrade of earnings growth forecasts in line with recession averages it sees the index falling to 3,300.
Oil was volatile following last week's rout, as the market grappled with concerns over an economic slowdown versus worries about lost Russian supply amid sanctions over the Ukraine conflict.
Brent rose 0.4% to $113.53 a barrel after suffering on Friday its biggest one-week drop since April, while U.S. West Texas Intermediate futures added 0.1% at $107.83.
U.S. 10-year Treasury yields stood above 3% as traders removed bets for hikes next year but still pondered about aggressive tightening this year. They rose 3 basis points at 3.171%, off an 11-year high reached earlier this month.
Germany's 10-year government bond yield, the benchmark of the euro zone, rose 10 basis points to 1.544%.
The dollar consolidated near the lowest since the middle of the month against major peers, as traders reassessed the prospects of aggressive rate hikes.
The dollar index - which measures the currency versus six rivals - was down 0.1% at 103.94.
Gold rose 0.6% to $1,837.3 per ounce.
Bitcoin rose 1.2% to $21,409 after falling as low as $17,588.88 earlier this month.
(Reporting by Danilo Masoni, Kevin Buckland and Sam Byford; Editing by Bernadette Baum)