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GLOBAL MARKETS-World stocks hit 30-month high; oil rises

Published 02/17/2011, 04:07 AM
Updated 02/17/2011, 04:08 AM
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* World stocks rise 0.3 percent, hit 30-month high

* Oil prices gain on growing Middle East tensions * Political unrest also boosts safe-haven assets

By Dominic Lau

LONDON, Feb 17 (Reuters) - World stocks hit a 30-month high on Thursday, driven by strong corporate earnings and cautious B optimism on the U.S. economic recovery from the Federal Reserve, while oil prices edged higher on growing political tensions.

Unrest spreading across the oil-rich Middle East and North Africa also helped boost the appeal of safe-haven assets, with Swiss francs gaining while yields on U.S. 10-year Treasuries and Bunds eased.

Robust earnings and merger activity have boosted global equities recently. Data from Thomson Reuters StarMine showed three quarters of U.S. companies met or beat market expectations for earnings in the fourth quarter.

"Many people are still optimistic about the market because the global economy is doing well and earnings for large U.S. companies have been quite good," said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank in Bonn.

Adding to positive sentiment, minutes from the U.S. Federal Reserve's Jan 25-26 policy session showed officials raised their forecasts for economic growth last month, though they still expected slow progress in reducing unemployment.

World equities measured by the MSCI All-Country World Index rose 0.3 percent, hitting their highest level since August 2008.

The index has risen 4.7 percent so far this year, but its valuations remain modest against a 10-year average. The MSCI global index has a 12-month forward price-to-earnings of 12.5 times against a 10-year average of 14.8, Thomson Reuters Datastream shows.

The MSCI emerging market index put on 0.3 percent, though it is down 3.4 percent for the year as many investors shift out of the booming developing markets on concerns over inflation.

EMERGING MARKETS

However, some remain positive on emerging market shares.

"Emerging markets earnings remain solid and there are reasons to expect they will improve relative to developed markets," Citigroup said in a note. "Emerging market relative valuations are at their lowest level since 2008. The pullback provides an opportunity to buy." Europe's FTSEurofirst 300 gained 0.2 percent, aided by forecast-beating earnings from Swiss food group Nestle and computer consultantcy Capgemini. In Asia, Japanese shares added 0.3 percent, up for the fourth straight session to a 9-1/2 month closing high.

London crude prices extended gains to hold at 2-1/2 year highs of more than $104 a barrel, as fresh Israel-Iran tension fed spreading unrest in the Middle East and stoked fears of a disruption of oil flows in the region.

Copper, however, fell for the third straight session, down 0.8 percent after hitting a record high on Monday.

The dollar was down 0.2 percent at 0.9567 Swiss francs, while the euro fell 0.3 percent to 1.2972 francs.

"If events in the Middle East do escalate we will see safe haven flows which will help the Swiss franc, but equities are still holding up for now," said Kenneth Broux, market economist at Lloyds.

The dollar, however, was up 0.1 percent against a basket of major currencies.

(Additional reporting by Harpreet Bhal, Scott Barber and Jessica Mortimer; Editing by John Stonestreet)

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