* MSCI World index steady; T-Bill yields perk up * Gold on course for third week of gains * Reflation trade in question as COVID-19 cases rise * Treasury rally stalls: tmsnrt.rs/3dXKQYM LONDON, July 9 (Reuters) - World stocks steadied, Treasury yields bounced and the dollar held firm on Friday as markets took a cautious breather in the face of fresh concerns over the pace of the world’s economic recovery from COVID-19. Markets have been roiled this week as a rise in cases of the Delta coronavirus variant globally crimped risk appetite and led to a flight to safety as some bet the post-pandemic reflation trade had stalled and secular stagnation was back on the agenda. “There seems to be the gradual realisation for many that the vaccination programmes alone won’t prove enough to get economies back to their pre-COVID normality, with cases at the global level now ticking up again as the more infectious Delta variant spreads across the world,” said Deutsche Bank analyst Jim Reid. Weighed against that is the still ultra-easy monetary policy from many of the world’s major central banks, although some fear this could yet be curtailed if inflation picks up and policymaker largesse is reined in. “Swings in sentiment and positioning may prove to be powerful in both directions. But ultimately, the data will be key,” said Mark Dowding, chief investment officer at BlueBay Asset Management. The MSCI World index edged higher, up 0.1%, as gains among many European bourses helped offset overnight weakness in Asia, but remains on course for a weekly fall of around 1%. The STOXX Europe 600 index was up 0.9%, recovering more than half of the prior session’s decline, but still on course to record the second straight week of losses. Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan had briefly touched two-month lows before paring losses to trade down 0.2%. U.S. stock futures pointed to a higher open on Wall Street, up 0.4%. Analysts said an accumulation of events had triggered the more more cautious sentiment. Fears central banks could choke economic recovery by tightening policy in their efforts to rein in inflation, the rapid spread of the Delta variant and still low rates of vaccination have darkened the outlook. In Australia, stay-at-home orders were introduced in Sydney to help combat the spread of the virus. Vietnam also introduced new restrictions, with record deaths reported across South Asia. After dipping sharply over the early part of the week, yields on 10-year Treasury notes bounced on Friday, up around 4 basis points to 1.337%, although still nowhere close to 2021 highs of 1.776% reached in March. A reading on Thursday on the number of Americans filing new unemployment claims added to views that the job market recovery from the COVID-19 pandemic continues to be choppy. In Europe, safe-haven German Bund yields ticked higher but were still eyeing the biggest two-week drop since March 2020 as investors eyed a likely longer road to economic recovery. In currencies, the safe haven yen was up 0.3% at 110.10 per dollar while the euro dipped to $1.1837. That left the dollar index, which tracks the greenback versus a basket of six currencies, up 0.1% at 92.471. “The most important issue to consider is the current drop in yields globally, and what this downward trend implies in terms of risk aversion and trade repositioning,” said Thomas Flury, Head of FX Strategies at UBS Global Wealth Management, in a note. “So far, we think markets are trapped in some momentum trades, which have little persistence.” Gold, another safe haven asset, was on track for its third straight weekly gain. It was last up 0.1% at $1,804 an ounce. Oil prices added to overnight gains as U.S inventories declined, but remain on course for a weekly loss. Brent crude was up 29 cents to $74.41 a barrel. U.S. crude added 41 cents to $73.35 per barrel. Additional reporting by Abhinav Ramnarayan, Swati Pandey and Sujata Rao; Editing by Shri Navaratnam, Timothy Heritage and Giles Elgood