By Sebastian Tong
LONDON, April 8 (Reuters) - World shares hit their highest
level in almost three years on Friday, driven by strong
commodity prices, while expectations of further euro zone rate
hikes propelled the euro to a 15-month peak versus the dollar.
Caution before the quarterly reporting season kept stock
gains modest, however.
Boosted by Thursday's European Central Bank rate hike, the
euro <EUR=> rose to its highest since January 2010, sidestepping
resurgent doubts over the resilience of the single currency zone
following Portugal's request this week for international
financial aid to cope with its debt.
The dollar also suffered a broader retreat on worries over
government paralysis in the United States.
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BOJ versus Fed assets: http://link.reuters.com/saq88r
Select interest rates: http://link.reuters.com/vug88r
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The ECB's move to raise its key interest rate to 1.25
percent has widened the euro zone's yield advantage over the
United States, Britain and Japan, where policy rates remain at
record lows. []
ECB chief Jean-Claude Trichet signalled that the bank was
ready to tighten further to curb inflationary pressures but
added that the bank had not decided that the widely expected
move was the first in a series of hikes.
Nonetheless, expectations of further rate hikes saw the Bund
June future <FGBLc1> fall 45 ticks to a 1-1/2 year low.
Meanwhile, the dollar was pressured by a looming shutdown of
U.S. federal government at midnight on Friday after President
Barack Obama and congressional leaders failed on Thursday to
resolve a standoff over the budget. []
"We're seeing broad-based dollar selling, especially against
currencies with a favourable yield," said Carl Hammer, currency
strategist at SEB in Stockholm.
"With all the focus recently on debt problems in the euro
zone periphery, what is going on in the U.S. highlights that the
U.S. has budget problems of its own, while the euro continues to
be driven by the prospect of more rate hikes".
U.S. Treasury prices were pressured amid concern that the
shutdown would disrupt the government's debt-buying programme.
The dollar's <.DXY> slide against a basket of major
currencies to 16-month lows nudged metal prices to fresh highs,
sending gold <XAU=> to a record high and boosting silver <XAG=>
past the $40 an ounce level for the first time since 1980.
Oil prices <CLc1> <CLc1> hovered at 2-1/2 year highs.
Mining shares consequently led European stock gains, pushing
the key FTSEurofirst 300 index <> 0.5 percent higher.
The MSCI main world equity index <.MIWD00000PUS> rose half a
percentage point, trading at its highest level since July 2008
and on track for their third consecutive weekly gain.
Emerging stocks <.MSCIEF> were at their highest levels in 34
months.
Relief that Thursday's strong aftershock in Japan's already
earthquake- and tsunami-ravaged northeast did not inflict major
damage underpinned sentiment, but investors are staying cautious
ahead of the start of the reporting season next week.
"Global net earnings upgrades have slowed significantly and
are close to turning negative," Credit Suisse Equity Research
said in a note.
Emerging sovereign spreads <11EMJ> tightened 6 bps to trade
242 bps over U.S. Treasuries
(Additional reporting by Jessica Mortimer; Editing by Hugh
Lawson)
