(Updates throughout, adds oil)
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 28 (Reuters) - Increasing confidence that the
worst of the credit crisis is over lifted world stocks on Monday
while inflation concerns grew with oil prices heading to $120 a
barrel.
Investors have also stopped taking it for granted the U.S.
Federal Reserve will cut interest rates later in the week,
although most still expect such a move.
Oil <CLc1> leapt more than $1 to a record high of $119.53 a
barrel after workers pushed ahead with a two-day strike that
shut a major pipeline supplying about half of Britain's oil.
There was also fresh violence on oil-producer Nigeria.
Crude later fell back from its high to trade at around
$118.80.
"Supply-side concerns underpinned the oil price," David
Moore, a commodity strategist at the Commonwealth Bank of
Australia, said in a note to clients.
Stock markets generally looked past the issue, continuing
their recent rally.
MSCI's main world stock index <.MIWD00000PUS> was up at
mid-January levels having gained nearly 4 percent this month.
The pan-European FTSEurofirst 300 <> gained 0.5
percent on the day and Japan's Nikkei average <> hit a
two-month closing high of 13,894.37, up 30.90 points or 0.2
percent.
Japan's broader TOPIX index <> gained 1.6 percent or
21.84 points to 1,361.75.
"What initially seemed like a much-needed 'spring reprieve'
has turned into a full-fledged equity/spread rally, albeit one
based on many unsettling contradictions," Lehman Brothers said
on a note.
"April unfolded as the converse of the first quarter with
some asset classes with vigour not seen since the beginning of
the last credit cycle."
EASING CRISIS
Investors have become increasingly persuaded that the credit
crisis is easing and is not likely to cause lasting damage.
UBS, for example, upgraded the global banking sector to
"neutral", saying that with more than $191 billion of capital
raised, bank capitalisation was well under way [].
Banks were among the biggest gainers on European bourses,
helped by renewed optimism for the sector after American Express
<AXP.N> posted forecast-beating results on Friday.
The recovery in sentiment, however, has been raising some
thoughts that the Fed may not cut rates on Wednesday after
chopping 3 percentage points off to 2.25 percent since
mid-September in an effort to pump money into the financial
system and restore investor confidence.
Futures markets <FEDWATCH> are still suggesting an 80
percent chance of another 25 basis point cut, but now give a 20
percent chance of no change.
On foreign exchange markets, the euro was higher against the
dollar, with larger gains cut back after consumer price data
from four German states showed prices fell in April, suggesting
easing price pressures in the euro zone's biggest economy.
The single currency was trading around $1.5657 <EUR=>, up
0.2 percent. The dollar was flat at 104.44 yen <JPY=> having hit
a two-month high earlier in the day.
Short-term euro zone government bonds gained on the German
data. The two-year Schatz <EU2YT=RR> yield was down 4 basis
points at 3.824 percent.
The 10-year bond yield <EU10YT=RR> gained 1 basis points to
4.192 percent.
(Editing by David Christian-Edwards)
