* Fed sparks investor binge on world stocks
* Emerging market debt in demand
* Dollar weaker against major currencies
By Jeremy Gaunt, European Investment Correspondent
LONDON, Nov 4 (Reuters) - World stocks rose strongly,
touching new two-year highs, demand for emerging sovereign debt
increased and the dollar fell on Thursday as the afterglow of
the Federal Reserve's asset buying plan spread across markets.
Wall Street looked set to join in the stock rally.
The Fed on Wednesday said it would spend would spend $600
billion buying longer-term Treasury bonds through to the end of
next June as part of a renewed quantitative easing (QE)
programme.
This was a little more than expected, but not enough to
spook markets with worries about a worse-than-anticipated U.S.
economic picture.
"The result was slightly pleasantly surprising," said
Jonathan Schiessl, investment manager at wealth managers
Ashburton in Jersey. "The risk trade is back on."
The trade, which has been running on and off since QE was
first anticipated in late August, essentially involves buying
emerging markets for their better growth prospects and potential
currency appreciation.
But stocks in general also benefit because of the impact of
a huge wave of liquidity into the financial system.
MSCI's all-country world stocks index <.MIWD00000PUS> was up
1.2 percent on the day at new two-year highs and within reach of
its levels just before the collapse of Lehman Brothers. MSCI's
emerging market index <.MSCIEF> gained 1.1 percent.
Investors were also ploughing into traditionally more risky
emerging market sovereign debt. The yield spread between
emerging market debt and U.S. Treasuries as measured by JPMorgan
<11EMJ> narrowed to levels last seen nearly three years ago.
Developed market stocks were also much in demand. The
pan-European FTSEurofirst 300 <> was up 1.3 percent and
Japan's Nikkei <> closed up 2.17 percent.
The move to QE also came as global manufacturing activity
has accelerated for the first time in six months, creating a
situation in which an already improving world economy has been
given a sharp monetary stimulus. []
DOLLAR DUMPED
The main "victim" of QE is the U.S. dollar which is
effectively devalued by the printing of new money to buy the
$600 billion in assets.
The dollar was down sharply, hitting a 28-year low versus
the high-yielding Australian dollar, and losing around three
quarters of a percent against a basket of major currencies
<.DXY>.
The Fed's commitment to purchases of Treasuries, implying
low funding costs, brought into focus an expected increased use
of the dollar in carry trades, in which the U.S. currency is
used to fund purchases in commodities, emerging markets and
higher-yielding currencies.
The euro <EUR=> traded at $1.4226, up around 0.6 percent on
the day, having touched a nine-month high at $1.4243.
Euro gains are being restrained by concerns over euro zone
debt, particularly in Ireland and Greece.
Euro zone government bond yields rose as investors pondered
the impact of U.S. QE on inflation.
(Editing by Toby Chopra)
