* Graphic: Global asset performance tmsnrt.rs/2yaDPgn * Graphic: World FX rates tmsnrt.rs/2egbfVh LONDON, Jan 18 (Reuters) - Global stock markets sank on Monday as soaring COVID-19 cases offset investor hopes of a quick economic recovery, while the Chinese economy posted a better-than-expected rebound in the fourth quarter of 2020. European stocks as measured by the STOXX 600 index opened 0.3% weaker, after failed merger talks between French retailer Carrefour and Alimentation Couche-Tard . Germany’s DAX fell 0.2%, France’s CAC 40 index fell 0.3% and Italy’s FTSE MIB index slipped 0.3%. Britain’s FTSE 100 index fell 0.1%. In Asia, Chinese blue chips gained 0.8% after the economy was reported to have grown 6.5% in the fourth quarter, on a year earlier, topping forecasts of 6.1%. Industrial production for December also beat estimates, though retail sales missed the mark. “The recovery in domestic demand still lacks a solid backing,” said Lauri Hälikkä, fixed income and FX strategist at SEB. “Sporadic virus outbreaks have intensified downside risks in the near term.” Hallika said the impact of the latest regional lockdowns and mass testing is likely to be limited and short-lived. The pick-up in China was a marked contrast to the United States and Europe, where the spread of coronavirus has hit consumer spending, underlined by dismal U.S. retail sales reported on Friday. Poor U.S. consumer spending data last week helped Treasuries pare some of their recent steep losses and 10-year yields were trading at 1.087%, down from last week’s top of 1.187%. The more sober mood in turn boosted the safe-haven U.S. dollar, catching a bearish market deeply short. Speculators increased their net short dollar position to the largest since May 2011 in the week ended Jan. 12. Also evident are doubts about how much of U.S. President-elect Joe Biden’s stimulus package will make it through Congress given Republican opposition, and the risk of more violence at his inauguration on Wednesday. Elsewhere in Asian markets, Japan’s Nikkei slipped 0.8% and away from a 30-year high. MSCI’S All Country World Index, which tracks stocks across 49 countries, fell 0.1%, down for a second session after hitting record highs only last week. E-Mini futures for the S&P 500 dipped 0.2%, though Wall Street will be closed on Monday for a holiday. BUBBLE? Investors have discussed the question of whether markets are in or may be headed for a bubble. In a monthly letter to clients last week, Mark Haefele, chief investment officer at UBS Global Wealth Management said all of the preconditions for a bubble are in place. “Financing costs are at record lows, new participants are being drawn into markets, and the combination of high accumulated savings and low prospective returns on traditional assets create both the means and the desire to engage in speculative activity,” he said, warning that in the months ahead, investors will need to pay particular attention to “risks of a monetary policy reversal, rising equity valuations, and the rate of the post-pandemic recovery.” Haefele said however that while he sees pockets of speculation, the broader equity market is not in a bubble. Cryptocurrency Bitcoin traded up 1.2%, fetching $36,236. The dollar index duly firmed to 90.908, its strongest since Dec. 21,, and away from its recent 2-1/2 year trough at 89.206. The euro had retreated to $1.2065, from its January peak at $1.2349, while the dollar held steady on the yen at 103.78 and well above the recent low at 102.57. The Canadian dollar eased to $1.2792 per dollar after Reuters reported Biden planned to revoke the permit for the Keystone XL oil pipeline. Biden’s pick for Treasury Secretary, Janet Yellen, is expected to rule out seeking a weaker dollar when testifying on Capital Hill on Tuesday, the Wall Street Journal reported. Gold prices gained 0.4% to $1,833 an ounce, compared to its January top of $1,959. Oil prices ran into profit-taking on worries the spread of increasingly tight lockdowns globally would hurt demand. Brent crude futures were off 0.6% at $54.58 a barrel, while U.S. crude eased 0.4% to$52.15.