* MSCI world equity index up 1.3 pct at 252.78
* Oil surges to fresh 7-month high above $71 a barrel
* Dollar, government bonds fall
By Natsuko Waki
LONDON, June 10 (Reuters) - World stocks hit a one-week high
on Wednesday, led by banking shares, while resource-related
stocks also rallied after improving Asian economic data and a
weak dollar pushed oil to a fresh 7-month high.
European banking stocks got support after the U.S. Treasury
said on Tuesday that 10 big banks will repay $68 billion
received under the Troubled Asset Relief Program, or TARP, to
the government.
Signs of a recovery in the global economy -- backed up on
Wednesday by media reports of stronger factory Chinese output
and rising Australian consumer confidence -- are fanning
expectations that demand for commodities will recover, which
would help to boost profits in resource-related stocks.
"Optimism on the recovery continues unabated and investors
are looking on the positive side, and looking for indicators
that show that the market has reached its bottom," said Grahame
Exton, fund manager at Tilney Investment Management.
MSCI world equity index <.MIWD00000PUS> rose 1.3 percent,
edging closer to a 7-1/2 month high set last week. The
FTSEurofirst 300 index <> rose 2.2 percent.
Jim Stride, fund manager at AXA Investment Managers, said
his funds are increasing the weighting on financial sector
stocks to neutral from underweight.
"The actions taken by authorities to stabilise the financial
sector appear to be working and that is the central precursor to
a return to a normal economic condition... Our objective is to
be broadly neutral in that (financial) area," he said.
Shares in developing Asia <.MIAPJ0000PUS> rose more than 3
percent while emerging stocks <.MSCIEF> rose 2.4 percent.
Two Chinese newspapers reported that factory output in China
rose in May at the fastest pace since September last year. If
confirmed by official figures on Friday, this would be a major
positive surprise. In Australia, a key measure of consumer
confidence posted its biggest monthly rise in 22 years.
U.S. crude oil <CLc1> rose as high as $71.65, driven by a
weaker dollar, an American Petroleum Institute report showing a
larger-than-expected drop in crude oil stocks and a forecast by
the U.S. Energy Information Administration that falling oil
demand may have bottomed.
Oil has more than doubled from the low $30s hit in December,
although prices are still more than 50 percent below a record
high of $147.27 hit last July.
The dollar <.DXY> was steady against a basket of major
currencies as investors weighed chances of the Federal Reserve
raising interest rates soon.
The currency surged last week after stronger-than-expected
U.S. jobs data triggered expectations that interest rates might
rise soon. The benchmark 10-year U.S. yield spiked to
seven-month highs earlier this week <US10YT=RR> as investors
dumped government bonds.
The June Bund futures <FGBLc1> fell 37 ticks in Europe.
"The problem at the heart of the credit crisis... has not
disappeared. Instead, much of the burden has been transferred
from the private to the public sector. As a consequence,
government borrowing is surging," Dirk Wiedmann, head of
investments at Rothschild Private Banking & Trust, said in a
note.
"We recommend an underweight position in fixed
income. We see no compelling reason to hold government
bonds: demand is falling as the economic data improve and
supply is rising as the public finances deteriorate."
(Additional reporting by Simon Falush; Editing by Victoria
Main)
