(Updates prices, adds Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, Feb 14 (Reuters) - Equity markets rose and riskier
currency bets came back onto the table on Thursday as investors
were cheered by an improvement in Japan's economic outlook and
signs that the U.S. slowdown might not be as severe as feared.
Wall Street looked set for a positive start after three
consecutive gains on the S&P 500's <.SPX> this year.
European shares gained three-quarters of a percent while
Japan's Nikkei average <> closed up 4.3 percent, its
biggest one-day gain in six years.
The catalysts for the rallies were Wednesday's U.S. retail
sales data, which were better than expected and eased fears of a
consumer spending collapse, and much stronger-than-forecast
fourth-quarter Japanese growth, reported earlier on Thursday.
Japan's economy expanded by 0.9 percent in the fourth
quarter, more than double forecasts.
"We had come into the week after a series of disappointing
data (and with) recession fears," said Audrey Childe-Freeman,
senior European economist at CIBC World Markets.
"The better economic information we have had in the past two
days is producing come some welcome relief to equity markets."
News was also relatively bullish on the corporate earnings
front. French automaker Renault <RENA.PA>, for example, beat its
2007 profit margin target and said it expected to sell over 10
percent more vehicles in 2008 compared with 2007.
The pan-European FTSEurofirst <.FTEUS> was up 0.7 percent.
MSCI's main world stock index <.MIWD00000PUS> was up 1.1
percent. Emerging market equities, as measured by MSCI <.MSCIEF>
gained 2.5 percent.
Euro zone economic prospects were something of a dampener,
however, with fourth-quarter GDP growth being reported at half
that of the third quarter, 0.4 percent versus 0.8 percent.
But the data slightly beat expectations.
U.S. Federal Reserve Chairman Ben Bernanke and Treasury
Secretary Henry Paulson, meanwhile, were due to testify on the
state of the U.S. economy and financial markets before the
Senate Banking Committee later in the day.
Paulson was expected to tell Congress that the United States
is experiencing a "significant" housing market downturn but the
economy is fundamentally sound and should avoid recession.
CURRENCY RISK
The euro rose to a one-week high against the dollar while
Japan's yen was generally weaker as risk appetite improved.
"Currency markets generally will take their lead from the
general risk appetite tone," said Paul Robson, currency
strategist at RBS Global Banking.
The euro was up 0.3 percent against the dollar at $1.4615
<EUR=> -- highs seen a week ago.
The dollar was down 0.1 percent versus the Japanese currency
at 108.18 yen <JPY=>, just off a one-month peak near 108.37 yen
set a day earlier. The euro was 0.2 percent higher at 158.13 yen
<EURJPY=>.
The Japanese currency usually benefits from a risk averse
mood as currency investors tend to exit risky carry trade bets
funded by cheap borrowing in the yen, but falls when risk
appetite improves.
Euro zone government bond prices were generally lower,
depressed by the better global economic prospects and the equity
market gains.
"We're at levels now where we need continuing bad news, and
plenty of it, to rally further," said RBS rate strategist Andy
Chaytor.
Two-year euro zone government bond yields <EU2YT=RR> were at
3.17 percent, up 2 basis points, while 10-year yields
<EU10YT=RR> were flat at 3.98 percent, having touched a high of
4.009 percent.
