* World stocks climb as December rally progresses
* Wall Street set for gains
* U.S. Treasuries, Bunds steady
* Dollar slightly stronger
* Fitch slashes Ireland rating
By Jeremy Gaunt, European Investment Correspondent
LONDON, Dec 9 (Reuters) - World stocks ratcheted higher on
Thursday, adding to December's gains, and U.S. Treasuries
steadied following their recent sharp sell off.
Wall Street looked set to join in the equities rally.
A downgrade by Fitch Ratings of Ireland's sovereign debt
took a bit of the edge off European stock gains, but only after
they hit a fresh 26-month high. []
Euro weakness, partly due to the downgrade, helped the
dollar claw back some losses from the past couple of sessions.
A combination of rising optimism about the U.S. economy,
including over a proposed extension of tax cuts, and concerns
about the deficit that those measures would worsen, prompted a
sharp spike in Treasury yields on Wednesday as investors dumped
the bonds.
Thursday, however, saw a cooling of the sell-off ardour.
"My hunch is that we are near a selling climax in U.S.
Treasuries. Such a feeling is also in the market, dampening the
dollar now," said Koichi Yoshikawa, head of forex trading at BNP
Paribas in Tokyo.
The yield on 10-year U.S. Treasuries <US10YT=RR> was around
3.25 percent in European trading, down around 2 basis points but
still around 90 basis points above this year's low hit in late
September.
At the Reuters 2011 Investment Outlook Summit held in New
York and London this week, leading investors indicated they
wanted to avoid benchmark government bonds because their low
yields were unsustainable.
"We are going to have to get used to rising long-term
yields. How else are you going to get the long-term savings
returns you need?" Andreas Utermann, chief investment officer of
fund firm RCM, said at the summit. []
The dollar, which has risen on prospects of higher yields
from U.S. assets, was down a quarter of a percent against a
basket of major currencies on Thursday <.DXY>, essentially
tracking the recovery-from-Wednesday mood.
The euro was down a third of a percent at $1.3214 <EUR=>.
Euro zone debt also gained slightly and tension surrounding
peripheral euro zone debt was muted, despite the Irish
downgrade.
The ratings agency downgraded Ireland to BBB+, but with a
stable outlook.
STOCKS RALLY
Investors, by contrast, have become more bullish about
equities, driving world stocks as measured by MSCI
<.MIWD00000PUS> up nearly 3 percent this month.
The all-country world index was up 0.2 percent on Thursday,
with its emerging market counterpart <.MSCIEF> gaining around a
third of a percent.
In Europe, the FTSEurofirst 300 <> was off its highs,
but up 0.2 percent.
December's rally is setting some equity indexes up for
reasonable 2010 gains. The MSCI all-country, for example, is up
around 8 percent for the year to date, while the emerging market
benchmark has risen more than 13 percent.
"Bonds outflows are negative for the first time since 2009,
while equity inflows are their highest since 2006 and money
market inflows have turned positive again," Credit Suisse said
in a note.
"This pattern of funds flow suggests that investors want to
be cautious, but realise that bonds carry a risk and that, at
the margin, some types of equities are safer than bonds."
(Additional reporting by Dominic Lau)
