* MSCI world equity index unchanged on the day at 221.54
* Oil below $40, two-year euro zone govt yield record low
* Dollar weaker
By Natsuko Waki
LONDON, Dec 23 (Reuters) - Concerns about the deteriorating global economy pushed oil below $40 a barrel on Tuesday and drove the two-year euro zone government bond yield to record lows, while European stocks rose, helped by gains in banks.
Data showing New Zealand's economy contracted by its biggest amount in eight years in the third quarter and moves by some U.S. manufacturers to cut jobs or benefits emphasised that the global economy is worsening, which cuts energy demand and weighs on risky assets.
In light pre-Christmas trade, investors were torn between the gloomy outlook and views that world stocks might have bottomed, having gained 18 percent from a 5-1/2 year low on Nov. 21.
"We see a 25-30 percent decline in earnings next year, which is a substantial headwind for equities. But the speed at which earnings decline will slow by mid-2009," said Franz Wenzel, strategist at AXA Investment Managers in Paris.
"We would not rule out a 20 to 30 percent stock market rally by the end of the year. So it will be a two-tier year: low for the first half or three-quarters, followed by year-end gains and an economic recovery."
MSCI world equity index was unchanged on the day. The FTSEurofirst 300 index of leading European shares rose 0.7 percent.
U.S. crude oil fell 1.3 percent to $39.41 a barrel.
The two-year euro zone government bond yield fell to fresh record lows of 1.764 percent, a day after the 10-year yield hit a record low of 2.918 percent.
U.S. stock futures pointed to a firmer start on Wall Street after the grim outlook hit U.S. shares on Monday.
Caterpillar, the world's largest maker of heavy construction and mining equipment, said on Monday it was cutting white-collar pay by up to 50 percent and offering buyouts to as many as 25,000 U.S. employees.
Textron, the world's largest maker of corporate jets, said it will eliminate 2,200 jobs worldwide to cope with a global downturn.
"As the year draws to an end therefore everyone is prepared to sit on their hands, do very little and prepare for what will hopefully be a better 2009, hoping that credit markets continue to stabilize and that the (Barack) Obama administration stimulus plans drag the U.S. back to life," Calyon said in a note to clients.
The March Bund future rose 12 ticks.
The dollar fell 0.2 percent against a basket of major currencies. Emerging stocks fell 2.1 percent. (Editing by Mike Peacock)