LONDON (Reuters) - Signs of improving U.S. economic growth helped ease stock markets into holiday mode on Monday, though a credit squeeze in China and gold facing its worst year in over two decades took the edge off gains.
Trading was thin, and with many investors gearing up for Christmas and with Tokyo on holiday, Wall Street was expected to add around 0.4 percent to Friday's all-time high finish.
European markets were also seeing some last-minute festive buying, with London's FTSE .FTSE and Frankfurt's Dax .GDAXI 0.5 higher ahead of the U.S. restart and Portuguese shares .PSI20 up a bumper 1.8 percent.
Sentiment globally was underpinned by upbeat U.S. GDP data and the resilience of stocks to the Federal Reserve's decision last week to start scaling back its bond-buying stimulus.
"Growth is picking up," International Monetary Fund head Christine Lagarde said on NBC. "And unemployment is going down. So all of that gives us a much stronger outlook for 2014, which brings us to raising our (U.S.) forecast."
The Dax's gain in Germany meant it too was heading into Christmas at an all-time high. It has risen almost 25 percent this year and analysts are eyeing more in 2014 if its powerhouse economy performs as expected. .EU
It wasn't all festive cheer, however. China's benchmark short-term money rates reached a near six-month high of 9.8 percent at one stage in Asia as its credit squeeze continued.
Rapid credit growth in the world's second-biggest economy has worried Chinese authorities, who fear rising debt levels are fuelling asset bubbles.
The People's Bank of China (PBOC) injected more than 300 billion yuan ($49.4 billion) into the interbank market on Friday in response to rising rates, but hinted that banks had work to do if they wanted to avoid a cash crunch.
"The PBOC appeared to stress that cash reserves are abundant in comparison to previous years. But the market has expanded sharply in recent years and demand in the interbank market has far exceeded the previous years' levels," said a trader at a major state-owned commercial bank in Shanghai.
The combination of the Fed tapering its bond-buying support and tighter China interest rates could weigh on emerging market currencies and assets, as it did back in June.
The Indonesian, Malaysian and Thai currencies all came under pressure last week and even the Korean won lost a little of its strength. The Thai baht, which also has domestic political turmoil to contend with, hit its lowest since early 2010 on Monday.
Shanghai stocks, which fell about 8 percent in the last two weeks, managed to bounce 0.4 percent .SSEC, lessening the fallout from its money market tensions across the region.
In the euro zone, Italy was in focus after getting a fresh warning from the European Central Bank on Sunday that it needed to keep its public finances in check.
Italian government bonds were vying with Spain to be the region's weakest performers, and Milan's main stock market .FTMIB was in positive territory largely on hopes of a stake sale at one of its most troubled banks.
Weak consumer data also hit sentiment ahead of a year-end news conference from Prime Minister Enrico Letta.
"Italy is suffering from a dearth of growth but for me it still seems to be a solid member of the euro zone," said Neil Williams, chief economist at fund manager Hermes.
"My concern for next year for the euro zone is not so much the periphery, but what happens with the bill-payers."
In the currency market, the dollar was idling just below 103.90 yen after hitting a five-year high at 104.64 last week. Dealers cited options barriers at 104.75 and 105.00 as the next target for bulls.
November personal income and spending data is on tap for 8:30 a.m. (1330 GMT), with both seen rising 0.5 percent. The final December reading of the Thomson Reuters/University of Michigan index on consumer sentiment is due at 9:55 a.m. Analysts expect a reading of 83, up from 82.5 last month.
The euro was firming at $1.3690, but remained well short of last week's peak of $1.3811. Some heat has been taken out of the shared currency since then as banks have stocked up for the sensitive year-end period with extra ECB funding. They added another 15 billion on Monday.
Among commodities, gold has been getting less precious by the day due to the winding back of U.S. stimulus and a general lack of global inflationary pressure.
The metal was pinned below $1,200 on Monday after carving out a six-month low of $1,187.80 last week. If prices stay at that level the metal would have shed 28 percent this year, the largest annual loss in 32 years.
In contrast, oil prices have been supported by a positive outlook for fuel demand in the United States and reduced Libyan supply. Brent crude was a fraction lower on Monday at $111.50 a barrel after gains of almost 3 percent last week.
U.S. oil futures dipped 34 cents to $98.98.
($1 = 6.0713 Chinese yuan)
Additional reporting by Wayne Cole in Sydney; Editing by John Stonestreet