By Sebastian Tong
LONDON, April 8 (Reuters) - Strong commodity prices drove
world shares to their highest in almost three years on Friday,
while expectations of further rises in euro zone interest rates
propelled the euro to a 15-month peak against the dollar.
Caution before the quarterly reporting season kept stock
gains modest, however.
Boosted by Thursday's European Central Bank rate hike and
the bank's tough talk on inflation, the euro <EUR=> rose to its
highest since January 2010.
Stronger than expected German trade data underlined the
health of the euro zone's largest economy, helping investors
look past doubts over the 17-country zone's resilience following
Portugal's request this week for aid. []
The dollar also suffered a broader retreat on worries over
government paralysis in the United States.
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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 although
he did soften the message somewhat by stressing that the bank
had not decided that the widely expected move was the first in a
series of hikes.
"The language was somewhat on the hawkish side overall. We
expect the ECB to hike another 50 basis points this year with
the risks to this forecast lying on the upside," said Goldman
Sachs in a note.
Expectations of further rate hikes saw the Bund June future
<FGBLc1> fall 54 ticks to a 1-1/2 year low.
PARALYSIS
The dollar remained pressured ahead of a looming shutdown of
non-essential U.S. federal government services at midnight on
Friday as President Barack Obama and Congressional leaders
continued talks to resolve a budget deadlock. []
"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."
Concern that the shutdown would disrupt the Federal
Reserve's programme of government debt-buying sent U.S. 10-year
Treasury yields to near six-week highs. []
The dollar's <.DXY> slide against a basket of major
currencies to 16-month lows impelled metal prices to fresh
highs, with gold <XAU=> hitting a record and silver <XAG=> past
the $40 an ounce level for the first time since 1980.
London Brent <LCOc1> rose past $124 per barrel, its highest
levels since August 2008, on supply disruption fears following
attacks on Libyan oil fields and Nigeria's postponed elections.
[] []
Mining shares led European stock gains, pushing the key
FTSEurofirst 300 index <> 0.5 percent higher and Britain's
FTSE100 <> up nearly 1 percent.
The MSCI main world equity index <.MIWD00000PUS> rose 0.6
percent, 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 5 bps to trade
244 bps over U.S. Treasuries.
(Additional reporting by Jessica Mortimer; editing by Patrick
Graham)
