* Euro gains on expectations of rise in interest rates
* Stocks buoyant, led by emerging markets
* Wall Street set for gains
* Portugal sells bill, but pays price
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 6 (Reuters) - Differing prospects for interest
rates sent the euro to a 14-month high against the dollar and
extended the yen's steep decline on Wednesday as investors
prepared for the launch of a tightening cycle in the euro zone.
World shares ticked higher, with emerging markets leading
the way -- a reflection of renewed interest in the sector
prompted in part by higher expectations for interest rates in
developed markets. []
Wall Street looked set to open higher.
Focus was also on battered euro zone peripheral economy
Portugal. It successfully sold six- and 12-month treasury bills
but had to pay a steep price in interest.
The European Central Bank meets on Thursday and is widely
expected to raise its benchmark interest rate by 25 basis points
from a record low 1.0 percent to curb inflation pressures.
The prospect of the euro zone's first rise in rates since
July 2008 pushed the euro to its highest level against the
dollar since late January 2010.
It rose as high as $1.4317 <EUR=> and also hit a high of
121.96 yen <EURJPY=R>, its strongest since May 2010. It was
later slightly weaker than these levels.
The Bank of Japan also meets on Thursday but if anything it
will ease monetary conditions rather than tighten, adding to the
attraction of higher-yielding currencies such as the euro.
The generally brighter picture of the world economy that
lies behind the trend towards rising rates has pushed stocks
steadily higher this year and there were more gains, briefly
lifting European shares to a four-week high.
World stocks as measured by MSCI <.MIWD00000OOPUS> were up a
third of a percent. Emerging market stocks <.MSCIEF> gained
around three quarters of a percent. The latter are up more than
10 percent since a mid-March low.
Europe's FTSEurofirst 300 <> gained 0.4 percent.
"Optimism continues to rule even though there are still ...
clear and present dangers. Portugal needs to find some financing
fast," said Philippe Gijsels, analyst at BNP Paribas Fortis
Global Markets.
"The market will continue to be well supported as long as
the U.S. Federal Reserve continues to put liquidity into the
system. Only when the Fed stops printing will we be able to see
the real strength of the economy and markets. And then markets
may be disappointed."
PORTUGAL
Portugal sold a total of 1.005 billion euros ($1.43 billion)
in 12-month and six-month T-bills, but yields rose sharply from
previous auctions last month.
The 12-month T-bill yield rose to 5.902 percent from 4.331
percent in the previous auction three weeks ago, while the yield
on the shorter maturity rose to 5.117 percent from 2.984 percent
in a sale in early March.
Demand, however, outstripped supply by 2.6 times for the
12-month t-bills and by 2.3 times for the six-month T-bills.
"The bill auctions show that Portugal is able to fund itself
in the bill markets, but the cost is substantially higher than
previous auctions," said Peter Chatwell, rate strategist at
Credit Agricole.
"I suspect that as far as the market is concerned, funding
at these levels can only be viewed as a temporary measure."
Portugal is struggling hard to avoid being overwhelmed by
its debt burden.
Moody's cut the credit ratings of seven Portuguese banks on
Wednesday, pointing to the lenders' weakened financial state and
the likelihood a government struggling with debt would limit
support for them.
The decision, including downgrades by one or more notches of
the senior debt and deposit ratings of seven banks, and
downgrades of the standalone credit assessment for five of those
banks, comes after Moody's cut Portugal's sovereign rating on
Tuesday.
(Additional reporting by Jessica Mortimer, Atul Prakash and
Patrick Graham; Editing by Toby Chopra)
