GLOBAL MARKETS-China growth unsettles stocks, euro buoyant

* China growth prompts fears of tightening

* World stocks fall, led by emerging markets

* Wall Street set for losses at open

* Euro edges higher on hopes of rescue fund reforms

By Jeremy Gaunt, European Investment Correspondent

LONDON, Jan 20 (Reuters) - Stronger-than-expected Chinese growth data spurred concern on Thursday about tighter monetary policy, prompting a sell-off in equities led by emerging markets.

Wall Street looked set to join in and open lower despite a large jump in earnings from Morgan Stanley <MS.N>, the second-largest U.S. investment bank. The euro was slightly higher as speculation grew that the euro zone's rescue mechanism for fiscally troubled peripheral states might be strengthened.

Chinese growth soared past forecasts and inflation slowed less than expected in the fourth quarter, prompting worries the government may intensify tightening.

The potential for measures to slow Chinese growth ending up as a hard landing is one of the major risks cited by investors heading into 2011.

"A lot of Asian economies, and especially China, (are) overheating. People have invested heavily in commodity shares and any disappointing news might provoke a ... correction," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

Emerging market stocks were the main victim, with MSCI's benchmark index <.MSCIEF> losing more than 1.2 percent and slipping into negative territory for the year.

Overall, global stocks as measured by MSCI <.MIWD00000PUS> lost 0.6 percent.

In Europe, the FTSEurofirst 300 <.FTEU3> was down nearly three-quarters of a percent, adding to 1.3 percent losses on Wednesday. Mining stocks were among the biggest losers on the assumption that demand for basic resources would fall if China's growth is reined in.

Earlier, Japan's Nikkei <.N225> closed 1.1. percent lower.

Overnight, the U.S. S&P 500 <.SPX> suffered its biggest decline in nearly two months as Goldman Sachs <GS.N> posted a 53 percent drop in profit on a tumble in trading revenue and Wells Fargo <WFC.N> came in below some analysts' estimates.

EURO EDGED UP

The euro edged up against the dollar on persistent demand from sovereign accounts and while investors gave euro zone officials time to make progress on finding a sustainable solution to its debt crisis.

Traders said Mideast and Asian central banks were buying.

Investors were generally optimistic the European Union's rescue fund (EFSF) will ultimately offer a comprehensive solution to help euro zone countries finance mounting debts.

"The markets remain fairly calm and are giving the euro zone authorities the benefit of the doubt for now, buying the euro on the back of its favourable yield differential relative to the dollar," said Kathleen Brooks, research director at FOREX.com.

The single currency <EUR=> was at $1.3485. It hit $1.3539 on Wednesday, its strongest since late November.

The Financial Times Deutschland on Thursday said euro area finance ministers had discussed a plan on Monday at a regular meeting in Brussels to allow Athens to buy back its own debt using credits from the euro zone's rescue fund. [ID:nLDE70J0CB]

"This has the potential to really get the uncertainty out of the air ... but so far we just lack the facts which hinders further (debt) spread tightening," said David Schnautz, rate strategist at Commerzbank.

(Additional reporting by Naomi Tajitsu, Neal Armstrong and Atul Prakash)