LONDON (Reuters) - World shares headed for their best week in eight months on Friday in the wake of reassuring comments from the Federal Reserve on its stimulus program, while the dollar bounced as focus switched to U.S. earnings and China’s economy.
Wall Street was expected to see a tentative start to the day after its record high finish on Thursday, with investors starting to digest a clutch of earnings reports from top U.S. banks including JP Morgan JPM.N and Wells Fargo WFC.N. .N
European shares rose steadily through the day as investors shrugged off some caution in Asia after China’s finance minister doused hopes of fresh stimulus, saying growth of below 7 percent was acceptable for Beijing.
The broad FTSEurofirst 300 .FTEU3 was up 0.5 percent ahead of the U.S. open and was more than 3 percent higher on the week, while MSCI’s world index .MIWO00000PUS looked on course for its best week since November.
This week’s rally in financial markets has spread across stocks and bonds to oil and metals and been driven by hints from the U.S. Federal Reserve that it may not be as eager to phase out its support as markets had started to believe.
“It is a win-win situation (for investors). If the economic data does start to pick up, it will be a gradual tapering of QE and if it does not, then they will keep the liquidity tap on,” said Chris Bates, analyst at Smith and Williamson.
After a week of swings in the world’s big currencies, foreign exchange markets were trading in a calmer fashion, though positioning had started ahead of Chinese growth data due on Monday. <FRX/>ECONG7
The dollar index .DXY, which plots the greenback’s performance against a basket of major currencies, bounced off 2 1/2 week lows, having slumped more than 2 percent since Fed Chairman Ben Bernanke assured it would remain in support mode.
That was the steepest fall in four years, normally seen only during financial crises.
“We are still structurally bullish dollar across a range of currencies including the euro and sterling,” said Chris Walker, a currency strategist at Barclays.
“What we saw this week was a washout of long dollar positions, but also a realization that Fed tightening is still some way out.”
The euro slipped to $1.3024, having jumped as far as $1.3208 on Thursday though it was well off this week’s trough of $1.2755.
One of the European Central Bank’s top policymakers, Peter Praet, added to the pressure on the currency, saying the bank will keep interest rates at current levels or cut them even further, as long as inflation remains moderate.
Portuguese government bonds fell again after Lisbon requested a delay to the next review of the country’s bailout program due to its political crisis.
Tensions were reignited this week after the country’s president threw out plans that looked to have patched up a government rift and instead demanded some kind of grand coalition. That would include opposition Socialists, who are distinctly cool on the government’s austerity and have been calling for snap elections.
“Portugal is struggling as the government delays the next quarterly review to the end of August, which is clearly fuelling fears that Portugal doesn’t have the appetite for further fiscal consolidation measures in place,” said Nick Stamenkovic, a rate strategist at RIA Capital Markets.
The rest of the currency bloc made gains, however, supported by the Fed’s soothing message this week and with Irish debt lifted by an upgrade to Ireland’s credit outlook by Standard & Poor‘s.
Commodity markets have also enjoyed a strong run this week as the talk of continuing central bank support has bolstered hopes of a pickup in global growth.
Gold eased 1 percent after four days of gains, having earlier been on track for its biggest weekly gain in nearly two years. Copper was still cruising to its best week in two months although it dipped back 0.7 percent to below $7,000 a metric ton.
Disappointing Chinese growth data on Monday could hurt commodities, though, while commodity-related currencies such as the Australian dollar would also be vulnerable.
After their recent turbulence, emerging market stocks were heading for a rare week of gains, recouping some of the 11 percent they have shed since the Fed started making noises about slowing its money printing program. <EMRG/FRX>
Brent oil was steady at just under $108 a barrel, having hit a three-month high on Thursday as the prospect of more supply from non-OPEC producers and concerns about China’s demand growth capped gains.
“We are seeing some concern that the upward momentum (in prices) has reversed,” said Michael McCarthy, chief market strategist at CMC Global Markets in Sydney.
Additional Reporting by David Brett and Emelia Sithole-Matarise; Editing by Susan Fenton