World stocks and dollar both gain

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Financial markets saw a rare breakdown in correlations on Friday with world stocks eking out modest gains after the previous sessions losses but the dollar strengthening.

In recent months, the U.S. currency and equities have worked almost in reverse tandem, with the former getting hit every time risk appetite bolsters the latter.

Investors are heading towards year-end seeking firm proof that the global economy is rebounding rather than just not getting worse. But at the same time there is a strong tendency to want to lock in profits.

This may be having some effect on the dollar, which has benefitted from the profit booking in higher-yielding currencies.

"Hedge funds are cashing out their positions to prepare for year-end redemption requests from their clients. And that move is encouraging others to take profits as well," said the head of a trading desk at a big Japanese bank.

As a result, the dollar was steady to slightly higher against a basket of major currencies. The euro slipped slightly to $1.4906 and Britain's pound was down a third of a percent at $1.6609 .

Also breaking with current patterns, the steady dollar did not push gold lower. It was up slightly at $1,145 an ounce , albeit about $7 off its record high reached on Wednesday.

Gold tends to rise when the dollar falls because the metal becomes cheaper to non-dollar investors.