* China diversification report hits dollar
* World shares flat
* Wall Street set for small gain at start
* Euro zone bonds hit one-month low
* Oil projected lower next year
By Jeremy Gaunt, European Investment Correspondent
LONDON, Oct 26 (Reuters) - A Chinese report saying Beijing
should increase its holdings of euros and yen in its foreign
reserves knocked the already battered dollar on Monday while
global stocks struggled to overcome last week's weakness.
Wall Street looked set for small gains at the open.
Euro zone government bonds hit a one-month low.
The dollar fell to a 14-month low against the euro and the
yen got a boost from an opinion piece in the Financial News, a
paper published by the People's Bank of China.
It said the dollar should remain the principal currency in
China's foreign exchange reserves but that the share of euros
and yen should increase. []
The issue of countries diversifying their reserves or even
ditching the dollar has been one of the factors weakening the
U.S. currency this year.
This was underlined by the general weakness that continued
even after the author of the report said he was expressing a
personal opinion.
The dollar has lost more than 7 percent against a basket of
major currencies so far this year <.DXY>.
"We have thin markets and markets are grabbing whatever they
can hold on to ... people are just looking for more excuses to
buy euro/dollar," said UBS currency strategist in London
Geoffrey Yu.
The euro <EUR=> rose as high as $1.5064 on trading platform
EBS, its highest since August 2008, pushing up from below $1.50
in early trade. It was later up 0.2 percent at $1.5025.
The dollar was down 0.1 percent at 91.95 yen <JPY=>.
On oil markets, crude was falling towards $80 a barrel. A
Reuters poll projected an average price of $74 a barrel, a rise
for the sixth consecutive month.[]
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For a graphic showing the Reuters oil price poll, click here:
http://graphics.thomsonreuters.com/109/CMD_OILPL1009.gif
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STOCKS FLAT
World equities as measured by MSCI <.MIWD00000PUS> were flat
and there were small gains on the main emerging market index
<.MSCIEF> after some weakness last week.
There were some signs last week that investors may be
becoming more jittery about taking on risk than they have been
lately, or at least keener to book profits.
Emerging market stocks, for example, fell for four days in a
row.
On Monday, European shares were flat. Analysts said some
investors were holding back for the U.S. GDP figures due later
this week to get some idea of direction.
Earlier, Japan's Nikkei average <> hit its highest
close in four weeks.
Euro zone government bonds edged lower, tracking U.S.
Treasuries down as that market braced for a record wave of
issuance this week.
December Bund futures <FGBLZ9> hit one one-month lows and
10-year bond yields were at one-month highs <EU10YT=RR> briefly
before recovering somewhat.
The U.S. government will offer a record $123 billion in
longer-dated debt this week, beating the previous record of $115
billion set in July.
(Additional reporting by Jessica Mortimer; graphic by Scott
Barber; editing by Stephen Nisbet)
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