* Stocks gain as year-end approaches
* Treasuries recover some losses after sell-off
* Dollar slightly weaker against other major currencies
(Updates with U.S. trading)
By Al Yoon and Jeremy Gaunt
NEW YORK/LONDON, Dec 29 (Reuters) - World stocks climbed to
their highest levels in more than 27 months on Wednesday as
investors seized on indications of stronger growth in 2011.
U.S. Treasuries steadied after dismal demand at an auction
of five-year notes on Tuesday sent yields higher, but they
struggled to hold gains. The dollar was about a fourth of a
percent lower against a basket of major currencies <.DXY>.
Investors are turning to riskier assets as 2010 draws to a
close, persuaded that the world economy is on the mend. They
also expect that the higher interest rates that typically
follow growth will hurt returns on government bonds and other
safe-haven assets at the core of portfolios since the financial
crisis erupted in late 2008.
Asset allocations are seen by many analysts, including some
bond pickers, favoring stocks in the new year.
"The first few days of the new year will be good as a lot
of new money will flow into the market," said Philippe Gijsels,
head of research at BNP Paribas Fortis Global Markets in
Brussels. "But people will become cautious again," he added.
Much of the stocks gain, however, came after Federal
Reserve Chairman Ben Bernanke made it clear in August that the
Fed was willing to buy more assets in order to pump liquidity
into the then-slowing U.S. economy.
This so-called "quantitative easing" and tax stimulus
measures have bolstered economic forecasts.
MSCI's all-country world stock index <.MIWD00000PUS> rose
1.4 percent to 330.01 for a new 2010 peak and the highest since
Sept. 4, 2008. The index's emerging market counterpart
<.MSCIEF> rose 1 percent.
In New York, the Dow Jones industrial average <> gained
36.44 points, or 0.31 percent, to 11,611.98. The Standard &
Poor's 500 Index <.SPX> added 2.97 points, or 0.24 percent, to
1,261.48 and the Nasdaq Composite Index <> was up 7.44
points, or 0.28 percent, at 2,670.32.
The S&P 500 has risen 6.7 percent this month, pushing the
benchmark index above levels reached on Sept. 12, 2008, the
last trading day before Lehman Brothers collapsed, as improving
economic data and a changed political landscape have encouraged
risk-taking.
"There is certainly a lot more optimism out there, either
founded or not, in terms of stock prices," said Kevin
Kruszenski, head of listed trading at KeyBanc Capital Markets
in Cleveland.
"At the end of the day, most companies have prepared their
balance sheets, and they are looking to grow either organically
or through acquisitions. The U.S. market is probably seen as a
place to find high-quality companies right now."
A Reuters graphic -- http://r.reuters.com/veq33r -- shows
the Nasdaq, copper and gold to be the big winners this year.
In Europe, the FTSEurofirst 300 <> rose about a third
of a percent. Japan's Nikkei <> gained 0.5 percent.
TREASURIES IN FOCUS
U.S. Treasury note prices bounced slightly on Wednesday
after thin demand for a $35 billion five-year note auction led
traders to drub the sector on Tuesday. Despite stability,
anxiety grew over the drumbeat of debt sales the government
will make to fund its deficit, including Wednesday's $29
billion in seven-year note sale.
The Treasury will hold the auction, the last of 2010, at 1
p.m. EST (1800 GMT).
U.S. bond yields have soared a full percentage point since
October on expectations that growth will accelerate in 2011,
while concerns over the U.S. deficit have raised inflation
fears and sapped demand for the debt.
The 10-year U.S. Treasury yield declined 0.01 percentage
point to 3.48 percent. The Treasury sell-off on Tuesday dented
demand for euro zone government debt.
In currency trading, the dollar fell against the yen as the
return to Japan of company earnings at year-end outweighed
higher U.S. bond yields.
Commodity gains boosted the Australian and New Zealand
dollars, while the euro edged up against the U.S. dollar after
holding above its 200-day moving average.
Though worries that the euro-zone debt crisis could spread
to Spain and Portugal have most analysts bracing for more euro
weakness in early 2011, the currency's stubborn refusal to
break below the 200-day moving average, now at $1.3084, has
frustrated bearish investors.
The dollar edged lower against a basket of major
trading-partner currencies, with the U.S. Dollar Index <.DXY>
off 0.24 percent at 80.173. The euro <EUR=> rose 0.17 percent
to $1.3139, while the dollar-yen exchange rate <JPY=> dropped
0.59 percent to 81.97 yen.
In commodities, U.S. light sweet crude oil <CLc1> fell 18
cents, or 0.2 percent, to $91.31 per barrel, and gold <XAU=>
rose $5.06, or 0.36 percent, to $1411.00.
(Additional reporting by Brian Gorman and Atul Prakash in
London, and Steven C. Johnson and Chuck Mikolajczak in New
York; graphic by Scott Barber; Editing by Dan Grebler)
