World stocks extend gains ahead of U.S. data, euro summit

LONDON Fri Dec 2, 2011 2:28pm IST

Traders at IG Index look at their screens at their offices in the City of London March 15, 2011. REUTERS/Andrew Winning/Files

Traders at IG Index look at their screens at their offices in the City of London March 15, 2011.

Credit: Reuters/Andrew Winning/Files

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LONDON (Reuters) - World stocks extended gains on Friday and looked set for the biggest weekly rise since mid-2009 thanks to coordinated central bank action that cut the cost of money market funds.

There were also widespread investor hopes that a key European summit next week could finally yield a concrete solution to the euro debt crisis.

Signs that the leaders of France and Germany are working hard to reach a compromise deal ahead of the December 9 summit, viewed as make-or-break for the 12-year old single currency bloc, helped the euro hold firm versus the dollar and encouraged investors to push equity markets higher.

German Chancellor Angela Merkel said in a speech, however, that the euro zone debt crisis could not be solved in one fell swoop. She urged a long-term approach that relies on tighter fiscal integration.

Sentiment has been buoyed, furthermore, by data showing an uptick in the U.S. economy, the world's largest, and employment data due later in the day broadly expected to confirm the tentative recovery.

World stocks on the MSCI all-country index were up half a percent, just off two week highs. The index is up 8 percent this week, continuing to benefit from Wednesday's move by major central banks to together cut the cost of funds in money markets.

European shares opened firmer and looked set to post their biggest gains since the onset of the 2008 financial crisis. The FTSEurofirst 300 index of top European shares was up 1.2 percent at 988.83 points.

The index is up 9 percent so far this week

Focus has however shifted to the U.S. jobs data due later in the day. Non-farm payrolls are expected to show an increase of 122,000 jobs, according to a Reuters poll.

"The big figure that many will be looking out for is the nonfarm payrolls and despite yesterday's climb in weekly jobless claims, the outlook remains bullish given....the fact that wider U.S. economic data is underlining the theme of recovery too," said Terry Pratt, trader at IG Markets.

Data on Thursday showed U.S. manufacturing activity rose to its highest in five months, while consumer spending and private-sector job creation have also been stronger.

"I don't think markets are looking for a payrolls number that will say the U.S. is on a very strong strong recovery trajectory, it's rather a number that should confirm what we've seen in other data, that things are not as bad as people thought a few months ago," said Johan Javeus, chief strategist at SEB in Stockholm.

In currencies, the euro struggled to extend its chunky gains of this week, with traders focused on the closely watched U.S. non-farm payrolls report due later on Friday. The euro was flat on the day at $1.3475.

The coordinated action by central banks pushed dollar LIBOR rates down for the first time in more than four months. London interbank offered rates for three-month dollars fell to 0.52722 percent on Thursday from 0.52889 percent in risky assets, its first decline since July 22

The signs of U.S. recovery kept Brent crude futures above $109 a barrel though markets were on edge ahead of the U.S. data and the euro summit.

U.S. Treasury prices extended declines with ten-year yields trading around 2.10 percent, staying above the 1-1/2 month low of 1.89 percent hit last week.

December Bund futures were 21 ticks lower at 134.67, off an earlier high of 135.07 with benchmark 10-year yields up 2.5 basis points at 2.16 percent.

The slightly better market sentiment supported peripheral euro zone debt which saw 10-year Italian yields falling 12 basis points, pushing the yield spread against German Bunds down 12 basis points on the day to 449 bps.

(Editing by Jeremy Gaunt.)

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