By Carolyn Cohn
LONDON, May 2 (Reuters) - World stocks hit their highest
levels since mid-January on Friday as confidence in the U.S.
economy grew, the dollar strengthened and oil prices fell, ahead
of key U.S. employment data later in the day.
Markets found comfort in the Federal Reserve's decision to
cut interest rates by a quarter point to 2 percent this week and
leave the door ajar for more monetary easing.
But some markets were slow to react with market holidays in
many countries on Thursday and Golden Week holidays in Japan
next week. UK markets have a holiday on Monday.
U.S. employment data at 1230 GMT is forecast to show an
80,000 drop in non-farm payrolls in April, the same fall as in
March.
"There is speculation that foreigners are now heading back
into buying U.S. assets and this has seen the dollar rally over
the last couple of weeks," said Adam Myers, markets strategist
at Credit Suisse.
"The market has bought a lot of dollars in thin trade so if
the payroll number comes in weaker than expected then people
with long dollar positions could be vulnerable as we could see a
sharp dollar sell-off," he said.
Data on Thursday showed U.S. personal spending in March was
higher than expected, while manufacturing activity did not
contract as much as some analysts had feared.
The figures reinforced expectations the Fed will keep
interest rates on hold for a while, boosting the dollar.
The MSCI main world equity index <.MIWD00000PUS> rose 0.6
percent to 387.53, its best showing since Jan 15. The
FTSEurofirst 300 index <> rose 1 percent to a two-month
high, led by banks and miners, following gains of more than 1
percent in U.S. stocks.
Miner Rio Tinto <RIO.L> rose as much as 2.3 percent after an
Australian newspaper cited Rio chairman Paul Skinner as saying a
break-up of his company was an option to extract the best return
for shareholders.
STOCKS CLIMB
Japan's Nikkei stock average <> rose more than 2
percent to its highest close in nearly four months.
U.S. stock index futures <SPM8>, however, were indicating a
softer open on Wall Street.
The dollar hit a two-month peak against the yen above 105
<JPY=> and steadied at $1.5468 per euro <EUR=>, close to
five-week highs set on Thursday.
The retreat in oil prices, which had threatened to hit a
record of $120 a barrel last week, quickened after supply
concerns eased in Nigeria. U.S. light crude <CLc1> fell half a
percent to a two-week low below $112.
Oil has fallen as demand from the top consumer, the United
States, wanes on the back of surging fuel costs and wider
economic woes.
Increasing risk appetite was reflected in emerging market
debt spreads, which tightened 5 basis points to 256 bps over
U.S. Treasuries <11EMJ>, levels last seen in early March.
With confidence seeping back, safe-haven assets lost some of
their appeal.
Gold <XAU=> was trading close to its lowest levels this year
at $854 an ounce. June Bund futures <FGBLM8> fell 14 ticks from
Wednesday's settlement price to 113.93, losing ground after data
showing growth in euro zone manufacturing PMI slipping to 50.7,
its lowest level since Aug 2005.
Bund futures were not traded on Thursday as exchanges were
closed.
However, analysts were sceptical that the recent run-up in
higher risk assets could continue.
"We are cautious against becoming over-exposed to risk
assets under current market conditions, as most indicators of
risk appetite suggest the market is neutral on risk at best,"
said analysts at UBS in a client note.
(Additional reporting by Simon Falush and Sitaraman Shankar in
London and Tom Miles in Hong Kong, editing by Mike Peacock)
