* World stocks gain on earnings optimism
* European stocks extend 29-month highs
* Sterling gains on rate hike expectations; euro up vs dlr
By Jessica Mortimer
LONDON, Feb 16 (Reuters) - Global stocks rose on Wednesday
on optimism about a strong outlook for corporate earnings, while
expectations for higher interest rates in the UK lifted sterling
and the euro gained against the dollar on sovereign demand.
The MSCI world equity index <.MIWD00000PUS> was up 0.3
percent at 344.08, edging close to a high hit earlier this month
of 344.64 which marked its strongest since August 2008.
European stocks <> were up 0.5 percent, extending a
rally into a fourth straight session after shares closed at a
fresh 29-month high on Tuesday, with beverage firms gaining
after Heineken beat market forecasts for 2010 earnings.
"There is a growing confidence in the outlook for the global
economy. The recovery looks like it is being transformed into a
sustainable expansion and that does mean that the outlook for
earnings is very positive," said Mike Lenhoff, chief strategist
at Brewin Dolphin.
The gains followed an earlier jump in Japan's Nikkei average
<> to a nine-month high, helped by a weaker yen and buying
by foreign investors.
Focus in foreign exchange markets was on sterling after a
jump in British inflation prompted Bank of England Governor
Mervyn King to acknowledge that interest rates might rise more
rapidly than economists had expected.
Sterling was up 0.2 percent against the dollar <GBP=D4> at
$1.6150 and hovered near a five-and-a-half month high against a
currency basket <=GBP> on anticipation the Bank of England will
offer a hawkish outlook on UK interest rates later on Wednesday.
UK consumer price inflation surged to a two-year high of 4.0
percent from 3.7 percent in December, providing an awkward
backdrop for the central bank's updated quarterly growth and
inflation forecasts on Wednesday. []
The euro <EUR=> was up 0.5 percent against the dollar at
$1.3552, lifted by Asian central bank buying.
The dollar <.DXY> was down 0.4 percent against a basket of
major currencies at 78.268.
OIL GAINS
U.S. oil prices <CLc1> recovered to nearly $85 a barrel,
trading up 43 cents at $84.75, lifted by an unexpected fall in
weekly crude stocks, while London Brent <LCOc1> rose past $102,
underpinned by continuing protests in the Middle East.
Traders will scour the Energy Information Administration's
(EIA) report, to be unveiled later, for confirmation of the
decline in U.S. weekly crude inventories seen in Tuesday's data
from the American Petroleum Institute (API).
Gold prices <XAU=> were up 0.3 percent on the day at
$1,377.11, close to a four-week high and helped by a decline in
the dollar versus the euro, with the market underpinned by
concerns inflation may be set to rise in the medium term.
The March Bund future <FGBLc1> was 7 ticks higher at 122.75,
while German government bond yields were steady ahead of a
10-year debt auction.
Portugal's one-year borrowing costs are expected to jump in
the T-bill auction on Wednesday on renewed concerns the
debt-laden country may need a bailout, but the yield should stay
below record levels seen in December. []
"The auctions are perhaps getting a little bit more
attention than they warrant as there haven't been any problems
for a while," said IDEA Global bond strategist Everett Brown.
"Ironically the worst auctions recently have been in
Germany."
Emerging stocks <.MSCIEF> were up 0.1 percent.
(Additional reporting by Harpreet Bhal, Kirsten Donovan and
Anirban Nag; Editing by Toby Chopra)
