(Updates prices, adds U.S. stock futures)
* Mood turns as oil prices fail to extend gains
* British markets stable during talks on EU membership
* Yen hits 2-1/2-year high against euro
* Ten-year Bund yields below 0.20 pct
By Marius Zaharia
LONDON, Feb 19 (Reuters) - A faltering oil price rally
pushed back European stocks and sent benchmark German Bund
yields below 0.20 percent on Friday as worries about the global
economic outlook returned to prominence.
The renewed aversion to risky assets pushed the Japanese yen
to 2-1/2-year high against the euro. Sterling dipped as summit
talks on changes in Britain's European Union membership dragged
on through the night.
Brent futures LCOc1 fell 57 cents to $33.71 a barrel after
ending the previous day down 22 cents. A record buildup in U.S.
crude stockpiles stoked concern about global oversupply,
outweighing moves by oil producers, including Saudi Arabia and
Russia, to cap output
The pan-European FTSEurofirst 300 .FTEU3 was down 0.7
percent at 1,284.84 points, though the index stayed on course
for its best week since January 2015. Britain's FTSE 100 .FTSE
was down 0.3 percent and U.S. stock futures SPc1 pointed to a
weak start on Wall Street.
The declines tracked Asian shares, which slipped from near
three-week highs.
Assets perceived as safe havens did well, with German
10-year Bund yields DE10YT=TWEB falling 3 basis points to 0.18
percent. Ten-year U.S. T-note yields US10YT=RR fell 2 basis
points to 1.73 percent.
"The recovery in risk markets is still fragile," said BNP
Paribas rate strategist Patrick Jacq.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS fell 0.5 percent and Japan's Nikkei .N225
dropped 1.4 percent. On the week, however, they were up about 4
percent and 7 percent, respectively.
The weekly jump came after gains in oil eased some of the
deflation concerns in the developed world.
Oil prices rose more than 14 percent in the three days to
Thursday after Saudi Arabia and Russia, supported by other
exporters including Venezuela and Iraq, moved to freeze oil
output at January's levels. Iran endorsed the plan without
commitment on Wednesday.
If approved, it would be the first such agreement in 15
years among the Organization of the Petroleum Exporting
Countries and non-OPEC members.
Iraqi Oil Minister Adel Abdul Mahdi said on Thursday that
talks would continue between both camps to find ways to restore
"normal" oil prices.
But data showing U.S. crude inventories rose by 2.1 million
barrels last week, to a peak of 504.1 million barrels - the
third week of record highs in the past month - held prices down.
BREXIT BACKDROP
At the EU summit, British Prime Minister David Cameron urged
EU leaders to agree a deal that would allow him to campaign in a
June referendum to stay in the EU. Fellow leaders and diplomats
said an agreement seemed possible on Friday, but some said
outstanding issues were proving tough to resolve.
Sterling was down 0.3 percent against the dollar GBP=D4 .
"By the end of today, we should have a decent idea whether
the UK is set to have a referendum on EU membership this year,"
said Simon Smith, chief economist at FxPro. "This matters for
sterling, which has certainly shown strong signs of concern so
far this year."
The yen EURJPY=R reached its strongest since June 2013
against the euro at 125.095. The dollar .DXY was flat against
a basket of major currencies.
Spot gold XAU= was down 0.9 percent at $1,221.42 an ounce.