World shares consolidate recent gains

Traders work at their desks at the Frankfurt stock exchange February 1, 2012.

LONDON (Reuters) - The euro hit an 11-month high against the dollar on Monday as fading prospects of an interest rate cut in Europe bolstered demand, while world shares consolidated recent gains prompted by an improving global growth outlook.

The common currency was up 0.2 percent at $1.3365, having hit a high of $1.3404 earlier for a hefty 2.5 percent jump since European Central Bank President Mario Draghi dampened expectations of further monetary policy easing in the near term.

Europe's FTSE Eurofirst 300 index of top companies was steady but just shy of a two-year high, while London's FTSE 100, Frankfurt's DAX and Paris's CAC-40 all traded around 0.1-0.4 percent higher.

"It does seem as if markets are in a mood to go up regardless of any worries, and there certainly doesn't seem to be too much bad news at the moment," said Chris Beecham, markets analyst at IG.

U.S. stock index futures pointed to a mixed open on Wall Street where investors were focused on corporate earnings due out as the first big reporting week of 2013 gets underway.

GROWTH HOPES

Equity markets have risen and most major currencies gained against the dollar this year after U.S. lawmakers struck a deal on taxes, easing fears of a sudden fiscal tightening that would slow the economy. Chinese data, which has begun to show a pickup in momentum in the world's second largest economy, has added to the optimism.

Japan, the third largest economy, is embarking on a new strategy to lift itself out of recession, weakening the yen substantially but boosting Tokyo stocks.

The MSCI world equity index traded near an 18-month high on Monday although it didn't push higher, while the dollar's value against a basket of major currencies floated around its lowest levels since the start of the year.

Chicago Federal Reserve chief Charles Evans, a voting member of the Fed's policymaking committee this year, underlined the better outlook by forecasting the U.S. economy would grow 2.5 percent in 2013 and 3.5 percent in 2014.

Evans added that markets could be confident the U.S. central bank would take action to boost the recovery without letting inflation take hold, although he did not refer to any further Fed easing.

Fed Chairman Ben Bernanke will speak on the outlook later in the day and investors will scrutinise his remarks for any clues on how much longer the Fed's bond purchase programme will last.

Any suggestion that the Fed is in no hurry to end its quantitative easing programme would probably lead to the dollar softening further against higher-yielding currencies such as the Australian dollar and those of faster-growing emerging economies.

YEN SINKS

Meanwhile the Japanese yen continued to sink against the other major currencies, touching a fresh a 2-1/2-year low of 89.67 yen against the dollar, on expectations that a round of aggressive monetary easing is coming soon in Japan.

New Prime Minister Shinzo Abe reiterated on Sunday his calls for the Bank of Japan to set a 2 percent inflation target and pursue bolder monetary easing to end nearly two decades of deflation.

Abe, who has already announced a huge budget stimulus for the Japanese economy, also said he would be appointing a new head of the central bank who shares his views when Governor Masaaki Shirakawa's term ends in April.

"The confirmation that there's going to be a push for a new governor (and) that new governor is going to have a mandate of 2 percent inflation - that plus the fiscal stimulus is a major negative for the yen," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.

Tokyo markets were closed on Monday for a holiday but MSCI's broadest index of Asia-Pacific shares outside Japan rose a modest 0.3 percent on the statement, remaining near a 17-month peak set on Friday.

COMMODITIES RECOVER

The growing optimism over the outlook for the world's biggest economies helped commodity prices to recover from last week's decline. Oil also benefited from a resurfacing of fears about a disruption of supply from the Middle East.

A cut in Saudi Arabian production last month, pipeline sabotage in Yemen and a weather-related drop in Iraqi shipments have reduced output, while fighting in Syria and Iranian naval exercises in the Strait of Hormuz reminded investors of the risk of wider disruption to Middle East supply.

Brent crude gained 50 cents to $111.14 a barrel, while U.S. crude rose 35 cents to $93.91 a barrel.

Copper edged up 0.3 percent to $8,069.50 a tonne and gold was up 0.6 percent at $1,672.70 an ounce.

(Additional reporting by Anirban Nag,; editing by David Stamp)