* Gold rushes higher amid brightened economic signals
* MSCI world equity index up 2 pct at 286.46
* Dollar slumps as safe-haven demand aborted
By Al Yoon
NEW YORK, Oct 6 (Reuters) - Gold soared to a record high
and global shares jumped on Tuesday after the first increase in
interest rates among G20 economies in more than a year boosted
confidence the global economic recovery is on track.
The dollar slumped as the optimism diminished safe-haven
demand for the U.S. currency.
The Australian dollar hit a 14-month high against the U.S.
currency after the country's central bank raised interest rates
by a quarter point to 3.25 percent and heralded more to come.
Signals of global economic progress, including recent economic
data, have supported asset prices broadly but could create
disparities for investors.
"The big story is Australia as other countries will now
seek to raise rates, in contrast to the United States where the
Fed is expected to raise rates last," said Lee Hardman,
currency analyst at Bank of Tokyo-Mitsubishi UFJ.
In the short term, the dollar may remain under pressure as
risk sentiment is improving and capital flows were turning
towards higher growth and emerging assets, he said.
The dollar move fueled the rally in gold, which is also
seen as a hedge against chances of stronger economic growth
sending inflation higher around the globe, said Tom Bentz, an
analyst at BNP Paribas Commodity Futures.
"Whether inflation becomes a serious threat or not is being
challenged here," Tom Sowanick, co-chief investment officer at
OmniVest Group LLC in Princeton, New Jersey.
Spot gold prices <XAU=> rose $22.05, or 2.17 percent, to
$1038.80, after earlier touching a record $1,045.
The dollar lost 0.46 percent against a basket of major
currencies <.DXY>. The Australian dollar rose as high as
$0.8919 <AUD=>. The euro <EUR=> gained 0.51 percent to $1.4722
and the dollar fell 0.79 percent to 88.79 yen <JPY=>.
The MSCI world equity index <.MIWD00000PUS> rose 1.95
percent while the FTSEurofirst 300 index <> gained 2.22
percent. The Dow Jones Industrial Average <> rose 1.36
percent to 9,730.04 and the Standard & Poor's 500 Index <.SPX>
climbed 1.39 percent to 1,054.96.
The rise in commodity prices lifted shares in the basic
materials sector. Alcoa Inc <AA.N> gained 3.4 percent to
$13.87, while Caterpillar Inc <CAT.N>, the world's largest
maker of earth-moving equipment, added 1.6 percent to $51.57
and was the top boost to the Dow industrials.
Freeport-McMoRan Copper & Gold Inc <FCX.N> shot up 3.7
percent to $69.81.
In Europe, miners' shares also surged on the back of gold's
rally, with BHP Billiton <BLT.L> and Rio Tinto <RIO.L> gaining
4.6 percent and 6.9 percent, respectively.
"I'm encouraged a commodity-exporting country is sensing
enough economic activity to raise rates," said Jack Ablin,
chief investment officer at Harris Private Bank in Chicago,
referring to Australia.
MORE HIKES
Australia's move is expected to be followed by South Korea,
whose won currency also hit a one-year high against the U.S.
currency before retreating on suspected intervention by the
authorities.
The Reserve Bank of Australia, after delivering a hike,
said it was safe to row back on stimulus now that the worst
danger for the economy had passed. Investors are now pricing in
at least one more rate rise by Christmas and rates above 4
percent in a year.
"The real news is the upbeat outlook that accompanied the
move, with a bullish growth forecast suggesting further hikes
are more than likely. Now that the cycle of global loosening is
broken, Norway will almost certainly be next at the end of the
month and attention will turn to Canada and New Zealand," Royal
Bank of Canada said in a note to clients.
"With other cyclical countries hiking, the Bank of Canada
and the Reserve Bank of New Zealand commitments to keep rates
unchanged till mid/late 2010 respectively, may begin to look
untenable. We see scope for the NZ dollar and Canadian dollar
rallies as those hikes start to be priced in."
The U.S. dollar fell earlier also after Britain's
Independent newspaper cited unidentified sources in Gulf Arab
states and Chinese banking sources in Hong Kong in a report on
a possible move to replace the dollar in oil trading.
U.S. light sweet crude oil <CLc1> rose 86 cents, or 1.22
percent, to $71.27 per barrel.
U.S. Treasury debt prices dropped amid increased supply of
the securities, and rising inflation expectations. The
benchmark 10-year U.S. Treasury note <US10YT=RR> dropped 13/32,
with the yield at 3.2662 percent.
(Additional reporting by Natsuko Waki in London and Rodrigo
Campos in New York, Editing by Chizu Nomiyama)
