* World stocks <.MIWD00000PUS> hit 5-week highs
* Equities gain on U.S. govt plan on toxic assets
* Dollar rises on hopes U.S. economy will revive
By Atul Prakash
LONDON, March 24 (Reuters) - World stocks hit five-week
highs on Tuesday on optimism a U.S. plan to purge toxic assets
from banks' balance sheets could ease the misery of the sector,
but the rally also provided investors a chance to take profits.
The dollar rose against the yen and the euro on hopes the
U.S. plan, detailed on Monday by U.S. Treasury Secretary Timothy
Geithner, will revive the world's largest economy.
This helped the dollar to halt last week's slide, which was
sparked by the Fed's plan to buy government debt as part of a
move to expand its balance sheet.
The MSCI World index <.MIWD00000PUS>, a gauge of global
stocks performance, rose 0.5 percent after rising to its highest
level since mid-February. The index, which fell to a six-year
low on March 9, has risen in 10 of the last 11 sessions.
The FTSEurofirst 300 index <> of top European shares
rose for a fourth consecutive session and was up 0.4 percent
after rising as much as 1.5 percent earlier. It pared gains as
investors took profits from recent moves that pushed the index
up 15 percent from its 12-year low hit on March 9.
"If this positive momentum can be sustained, and there are
further signs that the credit markets are loosening, we could
see money that had previously sat on the sidelines re-entering
the markets," said Chris Hossain, senior sales manager at ODL
Securities.
Appetite for riskier assets such as equities grew after
the U.S. government on Monday offered a raft of incentives for
private investors to help rid banks of up to $1 trillion in
toxic assets that plunged the world economy into crisis.
Latest euro zone economic data was also encouraging. Key
gauges of services and manufacturing activity suggested the
economic contraction gripping the euro zone eased a little in
March, against expectations, but firms continued to slash jobs
and prices. []
Sentiment also improved after Monday's data showed a
surprise rise in U.S. home sales, reviving hopes the battered
housing market could be on a recovery path.
But analysts said they wanted to see more evidence before
declaring the market has seen its trough. The FTSEurofirst is
still down 11 percent this year after plunging 45 percent in
2008 on a crisis that began with U.S. mortgage defaults in 2007
and has pushed much of the world into a deep recession.
"It is way too early to call the end of the bear market. The
financials have still recouped only a little part of the big
losses," said Philippe Gijsels, strategist at Fortis.
"The Geithner plan is certainly a step in the right
direction and should eventually help, but it is not a miracle
either. We will have to see whether the plan will actually
work," he said.
Analysts said the market could witness more bad news in the
coming months.
"Everyone seems very upbeat and people are calling the end
of the bear market, but we haven't reached the bottom of the
economic cycle -- there's at least three months of painful stuff
to come," said David Buik, senior strategist at BGC Partners.
EURO UNDER PRESSURE
In the currency market, the euro was under pressure as euro
zone policymakers suggested that interest rates in the region
could fall further.
"The initial reaction to Fed quantitative easing was to sell
the dollar, but after the Geithner plan people started thinking
that the U.S. is perhaps leading the global economy out of all
this," State Street currency strategist Lee Ferridge said.
"This U.S. recovery story benefits the dollar against both
the yen and the euro," he said.
The dollar index <.DXY>, a gauge of its performance against
a basket of major currencies, was up 0.3 percent at 83.693.
Euro zone government bond yields marked a five-day high
<EU10YT=RR>, while U.S. Treasuries <TYv1> slipped as stocks
extended their rally and dealers braced for this week's slew of
nearly $100 billion of U.S. bond supply, which opens with $40
billion of two-year T-Notes on Tuesday.
European credit derivative indexes rallied for a second day,
after stocks rose sharply. The investment-grade Markit iTraxx
Europe index <ITEEU5Y=GF> was at 154 basis points, according to
data from Markit, 9 basis points tighter versus late Monday.
In commodity markets, gold <XAU=> slipped on the firmer
dollar as the metal became costlier for holders of other
currencies. But crude oil prices <CLc1> retreated as investors
took profits after a 3 percent rally in the previous session.
(Additional reporting by Jessica Mortimer and Farah Master;
Editing by Andy Bruce)
