LONDON The U.S. dollar hit a 10-month low and world stocks hit 2-year highs on Thursday after Singapore let its currency strengthen with investors seeing easier U.S. monetary policy driving a flight to high-yielding assets.
Emerging market and other riskier assets are receiving a wave of investment ahead of an expected second round of quantitative easing -- money-printing -- by the U.S. Federal Reserve.
China has largely resisted pressure from developed powers for a gradual appreciation of the yuan, and the U.S. attempt to kickstart its economy is driving money elsewhere in search of higher yields.
The Singapore dollar hit multi-year highs after Singapore, which is suffering from rising inflation, allowed its trading band to widen, following a similar move this week by the Russian central bank.
"Effectively the Singapore move is a tightening of policy and it clearly shows Asian economies are at the opposite end of the spectrum compared to the spare capacity in the U.S. economy," said Chris Turner, head of FX strategy at ING.
Recent moves by emerging market powers such as Brazil and Thailand to curb currency appreciation and a war of words among global policymakers about FX imbalances reflect a lack of consensus ahead of a meeting of G20 financial leaders next week.
The dollar hit a 10-month low against an index of currencies and also struck an eight-month low against the euro , a 15-year low against the yen and a 28-year low close to parity with the Australian dollar .
The MSCI world equity index rose over 0.7 percent to 319.45, its best showing since shortly after the collapse of Lehman in Sept 2008. The Thomson Reuters global stock index also hit two-year highs before trimming gains.
U.S. stock futures rose 0.22 percent, pointing to a firmer open on Wall Street and the FTSEurofirst 300 index rose to 5-month highs before trimming gains.
The MSCI global emerging equities index rose 1 percent to its highest since June 2008.
"Stronger emerging market Asian economic growth, despite a weak U.S. economy, continues to feed the flow of investment funds into emerging Asia and countries with strong links...such as Australia, and away from the U.S.," said analysts at Barclays in a client note.
"Investors may read (Singapore's) move as a sign of greater willingness on the part of other emerging Asian central banks to allow further dollar depreciation."
Oil also rose towards five-month highs above $84 per barrel in a broad-based rally of commodities fuelled by a slump in the dollar and news of a surprise drop in U.S. stockpiles.
The falling U.S. dollar lifted gold prices to a record high $1,387.10 an ounce .
Bund futures fell 13 ticks as investors favoured riskier assets.
(Additional reporting by Neal Armstrong; Editing by Ron Askew)