* Stocks rise on Spanish austerity measures
* Euro loses bid as doubts on long term persist
* Gold sets record high at $1,244.45 per ounce (Updates with U.S. midday trading)
By Albert H. Yoon
NEW YORK, May 12 (Reuters) - World shares climbed on Wednesday as Spain outlined measures to cut its deficit, easing fears that the Greek debt crisis could spread in Europe, but doubts about the longer term drove down the euro and sent gold to record levels.
MSCI's all-country world stock index <.MIWD00000PUS> climbed nearly 0.9 percent, led by Europe, where the FTSEurofirst 300 <.FTEU3> index gained 1.3 percent.
"It is quite interesting that Spain has now followed through to cut its budget deficit. I guess the view is if Greece can do it then so can we. That sort of contagion is positive for the markets." said Mike Lenhoff, chief strategist at Brewin Dolphin.
Concerns that a debt crisis in Greece could spill over to other euro-zone nations with high borrowings eased on Wednesday as Spanish Prime Minister Jose Luis Rodriguez Zapatero said Madrid would slash civil service pay by 5 percent this year, freeze it in 2011 and cut 13,000 public sector jobs.
"There are certainly those people who will see the steps taken in Europe as a replay of the type of steps taken in the United States following the Lehman collapse," said Rick Meckler, president of investment firm LibertyView Capital Management in New York. "Ultimately that proved to be successful in the short run for markets."
Doubts about the longer term prospects for debt-laden European countries, however, persisted, and worries about euro zone growth also cast a cloud.
Gold hit a record high on a flight-to-safety bid, touching a new high of $1,244.45, which marked a nearly 20 percent gain since February. Spot gold
The Dow Jones industrial average <.DJI> gained 108.75 points, or 1.01 percent, to 10,857.01. The Standard & Poor's 500 Index <.SPX> rose 10.79 points, or 0.93 percent, to 1,166.58 and the Nasdaq Composite Index <.IXIC> climbed 34.52 points, or 1.45 percent, to 2,409.83.
The rise in the price of gold drove up materials shares.
The PHLX gold and silver index <.XAU> rose 1.5 percent.
Freeport-McMoRan Copper and Gold Inc
Technology and industrial shares also rose.
As investors shift attention from Europe's sovereign debt troubles, the focus will return to the U.S. economic recovery, though analysts predict choppy trading.
"The market has been increasingly conditioned to buy on the dips now that the situation in Europe has been not resolved but certainly stabilized in the short term," said Craig Peckham, equity trading strategist at Jefferies & Co in New York.
EURO SHEDS GAIN
The pan-European FTSEurofirst 300 <.FTEU3> index of top shares closed up 1.3 percent at 1,048.56 points. The index is now up 0.3 percent for the year having dipped into negative territory in early May on euro-zone sovereign debt concerns.
Financials were among the top gainers.
The euro
Germany's GDP grew for the fourth quarter in a row in the first three months of 2010, data showed on Wednesday.
Gains in the euro were short-lived as investors remain worried about whether weaker euro zone economies can deliver debt cuts and the draining impact of austerity measures on Europe's growth.
The dollar rose against a basket of major trading-partner currencies, with the U.S. Dollar Index <.DXY> up 0.29 percent at 84.712. Against the Japanese yen, the dollar
U.S. Treasuries prices fell as the euro zone's attempts to stanch its budget crisis helped stabilize stock markets and traders braced for a 10-year bond auction.
Investors must absorb $78 billion of U.S. Treasury bonds in auctions this week, including $24 billion of 10-year notes on Wednesday. Ten-year Treasury note yields rose 0.04 percentage point to 3.57 percent.
"People like to see that fiscal responsibility talk coming out of Europe, but I think it's more that we're watching equities and they're stable and we have a lot of supply," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.
In energy and commodities, U.S. light sweet crude oil
Across Europe, the FTSE 100 <.FTSE> index was up 0.9 percent as Conservative leader David Cameron took up the position of Prime Minister, at the head of a coalition government.
Germany's DAX <.GDAXI> was 2.4 percent higher and France's CAC 40 <.FCHI> rose 1.1 percent. (Additional reporting by Jeremy Gaunt in London, and Leah Schnurr, Burton Frierson and Wanfeng Zhou in New York; Editing by Leslie Adler)