* MSCI world equity index up 1.2 pct, at 5-week high
* Yuan hits 5-year high as China allows more flexibility
* Stocks, commodities up; dollar down broadly
By Natsuko Waki
LONDON, June 21 (Reuters) - World stocks hit a five-week
high, oil jumped and the euro rose briefly on Monday after China
pledged at the weekend to unshackle the yuan, easing tensions
with the West and boosting confidence in the global economy.
Spot yuan <CNY=CFXA> climbed to its highest level against
the dollar since its last revaluation in July 2005 in a clear
signal that Beijing was sticking to its word that it would allow
greater currency flexibility. []
Coming just days before a Group of 20 summit in Toronto,
China's move would boost purchasing power and demand in the
world's third largest economy, encouraging investors globally to
buy risky assets.
A higher yuan would also help temper inflation in China by
pushing down import prices, which in turn could mean Beijing
would have less need to tighten monetary policy aggressively.
"China's flexibility comment has shown that it has
confidence in its own economy and that is good news for the
global economy, which is lifting commodity prices and therefore
miners," said Richard Hunter, head of equities at Hargreaves
Lansdown.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Full yuan coverage []
Unlocking the yuan http://china.thomsonreuters.com/yuan/
Graphic on yuan movements http://r.reuters.com/sut87k
Insider TV
-- Yuan to rise before G20 http://link.reuters.com/jes92m
-- Yuan NDFs overshoot http://link.reuters.com/jup72m
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
MSCI world equity index <.MIWD00000PUS> rose 1 percent,
hitting its highest level since mid-May.
The FTSEurofirst 300 index <> was up 1.4 percent,
rising for the ninth straight session to hit a 5-1/2 week peak,
with basic resources stocks being the biggest gainers.
Emerging stocks <.MSCIEF> rose 2.3 percent to a six-week
high while emerging sovereign debt spreads <11EMJ> tightened 8
basis points to 302 bps, their narrowest in five weeks.
U.S. stock futures <SPc1> rose around 1.5 percent, pointing
to a firmer open on Wall Street later.
"The move appears to reflect increased confidence that the
Chinese and world economies are growing in a stable and
sustainable fashion," UBS said in a note to clients.
"Almost certainly, China's leadership would not have taken
this step unless they were confident about economic and
financial stability."
U.S. crude oil <CLc1> rose 1.4 percent to $78.25 a barrel
while spot gold <XAU=> hit a record high of $1,264.90 an ounce,
helped by the fall in the dollar <.DXY>, which lost around 0.1
percent against a basket of currencies.
The euro rose to a one-month high near $1.2490 before
erasing gains to $1.2382 <EUR=>, down 0.4 percent on the day.
Breaking the peg might mean China needs to buy less U.S.
dollars in intervention, which would leave it with fewer dollars
to buy U.S. Treasuries, but also less need to diversify its
holdings into currencies like the euro.
Bund futures <FGBLc1> fell 19 ticks as improving risk
appetite reduced demand for safe-haven government bonds.
(Additional reporting by Simon Falush, Editing by Sonya
Hepinstall)
