LONDON Signs of improving global economic recovery lifted world shares to 4-1/2 year highs on Wednesday, while sterling fell sharply when the Bank of England revealed it came close to easing policy further to boost growth.
Minutes from their last meeting showed that members of the BoE's Monetary Policy Committee were more inclined than had been thought to voting for more asset purchases under its quantitative easing (QE) programme and had even considered cutting interest rates.
"Today's minutes have made us more comfortable with our view that more QE is likely this year, particularly if GDP growth continues to fall short of the Committee's expectations," said Samuel Tombs, UK economist at Capital Economics.
The pound slumped to an 8-1/2-month low against the dollar of $1.5336, while the euro gained to a near 16-month high of 87.565 pence, up almost 0.9 percent.
Britain's main FTSE 100 stock index jumped 0.4 percent to 6,401.79 points, a fresh five-year high and above the 6.400 psychological level that some traders said could induce bigger moves higher.
The gains offset slightly weaker levels across some other European markets to lift the MSCI World Equity index by 0.25 percent to its best level since June 2008.
Global share markets had surged on Tuesday after forecast-beating German sentiment data pointed to an accelerating recovery in Europe's largest economy and a rise in merger activity in the United States encouraged buyers on Wall St.
Gains in Europe were being held in check by the approach of euro zone flash Purchasing Managers Index reports on Thursday and a German business sentiment survey on Friday that could show whether the region's recovery is taking hold.
The FTSEurofirst 300 index of top European shares was down 0.1 percent, though this followed a 1.1 percent rise on Tuesday - its best day for three weeks. Frankfurt's DAX was up 0.15 percent, while Paris's CAC-40 fell 0.2 percent.
"I see no reason why we can't consolidate the gains and possibly move higher," said Michael Hewson, an analyst at CMC Markets.
However, some traders have noted that European shares appear unable to break through their early 2011 levels.
U.S. stock index futures meanwhile pointed to a slightly firmer open when trading resumes later, with the S&P 500 and Dow Jones contracts 0.1 percent higher.
Data on U.S. new housing starts and building permits for January are all due at 1330 GMT and are expected to confirm a continued recovery in that market.
Attention in U.S. markets is likely to be focused on the minutes from the U.S. Federal Open Market Committee's January meeting, due at 1900 GMT, which may provide clues on how long monetary policy in the U.S. is likely to remain ultra loose.
SAFE HAVENS SLIDE
The recent rise in equities was weighing on assets perceived as safe havens, with German Bund futures down 0.3 percent to 142.24, though news that Spain may be about to issue a U.S. dollar bond helped support sentiment.
Yields on 10-year Treasuries edged up to around 2.047 percent from 2.03 percent in late U.S. trade.
Gold was also losing ground from a declining safe-haven appeal, hitting a six month low of $1,597.99 an ounce.
"Fundamentals for gold haven't really changed, but other asset classes have now become more attractive," said Tobias Merath, global head of commodity research at Credit Suisse.
In the currency markets the yen resumed its climb against the dollar after Japanese Prime Minister Shinzo Abe said the need to establish a special fund to buy foreign bonds had declined.
His comments came a day after Japan's finance minister also played down talk of such a scheme, which would have helped drive down the value of the yen.
The dollar fell as low as 93.12 yen after Abe's remarks before settling to be down 0.2 percent at 93.35 yen, moving away from a near three-year high of 94.46 hit on February 11.
Strategists said Japan was stepping back from some of its more aggressive policy-easing proposals after the Group of 20 nations declared at a meeting in Moscow on Saturday that there would be no global currency war.
In the commodity markets copper and oil prices were mostly steady after big moves on Tuesday.
Brent crude was up 2 cents at $117.54 a barrel, having posted the first gain in four sessions on Tuesday.
U.S. crude added 21 cents to $96.87.
Three-month copper futures on the London Metal Exchange (LME) were at $8,045 tonne, rebounding from three week lows hit in the previous session.
(Additional reporting by Marc Jones and Clara Denina; Editing by Will Waterman)