Brighter outlook boosts shares, dollar

Wed Mar 14, 2012 8:23am EDT
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By Richard Hubbard

LONDON (Reuters) - A sunnier global economic outlook and news most U.S. banks passed stress tests sent European shares close to eight-month peaks on Wednesday and pushed the dollar to fresh highs as prospects of more stimulus from major central banks dimmed.

With the same factors having driven the main stock market indexes to their biggest gains of the year on Tuesday, futures signaled a mixed opening on Wall Street.

The upsurge in risk appetite crimped demand for safe-haven government debt, with Treasury bond prices falling to their lowest since late October and equivalent German paper dipping to a three-week trough.

The dollar made broad gains against a range of currencies .DXY, hitting an 11-month high against the yen of 83.61 yen while the euro fell to a one-month low of $1.3031.

"It may prove a temporary phase, but at present the U.S. dollar is benefiting from higher relative yields reflecting the outperformance of the U.S. economy over other major developed economies," Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, said.

After the Federal Reserve described the country's output as "expanding moderately," compared to the "modest" growth description in its previous statement, many analysts took the view that a further round of asset buying by the U.S. central bank is now less likely.

Hints of a brighter outlook crept across the Atlantic as a slight rise in euro zone industrial production data for January ended two consecutive monthly falls and pointed towards the bloc's eventual recovery.

But the impact of high oil prices kept optimism in check, weighing on growth prospects and dampening hopes that Europe's debt crisis might be easing.   Continued...

An investor gestures as she talks to another investor (not pictured) in front of an electronic board showing stock information at a brokerage house in Shenyang, Liaoning province March 14, 2012. China shares sank 2.6 percent on Wednesday, the biggest one-day percentage fall in three-and-half months, after Premier Wen Jiabao doused expectations of any near-term easing of measures in the property sector, warning that letting up on regulation would risk chaos in the housing market. REUTERS/Sheng Li