* Stocks' upward momentum intact for year-end
* Treasuries recover some losses after selloff
* Dollar weaker against other major currencies
(Updates with U.S. midday trading)
By Al Yoon
NEW YORK, Dec 29 (Reuters) - World stocks climbed to their
highest levels in more than 27 months on Wednesday as investors
seized on indications of stronger growth in 2011.
U.S. Treasuries steadied after dismal demand at an auction
of five-year debt on Tuesday sent yields higher, boosting their
relative value for some investors. The dollar fell against a
basket of major currencies <.DXY>.
Investors are turning to riskier assets as 2010 draws to a
close, persuaded that the world economy is on the mend. They
also expect that the higher interest rates that typically
follow stronger growth will hurt returns on government bonds
and other safe-haven assets, relied on since the financial
crisis erupted.
Asset allocations are seen by many analysts, including some
bond pickers, as favoring stocks in the new year.
"The first few days of the new year will be good as a lot
of new money will flow into the market," said Philippe Gijsels,
head of research at BNP Paribas Fortis Global Markets in
Brussels. "But people will become cautious again," he added.
Much of stocks' gain came after Federal Reserve Chairman
Ben Bernanke made it clear in August that the Fed was willing
to buy more assets in order to pump liquidity into the slowing
U.S. economy.
This so-called quantitative easing and tax stimulus
measures have bolstered economic forecasts.
MSCI's all-country world stock index <.MIWD00000PUS> rose
1.7 percent to 330.32 for a new 2010 peak and the highest since
Sept. 3, 2008. The index's emerging market counterpart
<.MSCIEF> rose more than 1 percent.
In New York, the Dow Jones industrial average <> gained
30.31 points, or 0.26 percent, to 11,605.85. The Standard &
Poor's 500 Index <.SPX> added 2.83 points, or 0.22 percent, at
1,261.34 and the Nasdaq Composite Index <> rose 5.97
points, or 0.22 percent, to 2,668.85.
The S&P 500 has risen almost 7 percent this month, pushing
the benchmark index above levels reached on Sept. 12, 2008, the
last trading day before Lehman Brothers collapsed, as improving
economic data and a changed political landscape have encouraged
risk-taking.
"People are hoping that the consumer is back and that will
help fuel the engine and grow some earnings so that companies
will start hiring," said Frank Ingarra, a portfolio manager at
Hennessy Funds in Stamford, Connecticut.
The Nasdaq, copper and gold have been the big winners this
year. For a Reuters graphic, see http://r.reuters.com/veq33r
In Europe, the FTSEurofirst 300 <> rose about a
quarter of a percent. Japan's Nikkei <> gained 0.5
percent.
TREASURIES IN FOCUS
U.S. Treasury note prices bounced on Wednesday after thin
demand for a $35 billion five-year note auction led traders to
drub the sector on Tuesday. Despite bargain-hunting, anxiety
lingered over the drumbeat of debt sales the government will
make to fund its deficit, including Wednesday's $29 billion in
seven-year note sale.
The Treasury will hold the auction, the last of 2010, at 1
p.m. EST (1800 GMT).
U.S. bond yields have soared a full percentage point since
October on expectations that growth will accelerate in 2011,
while concerns over the U.S. deficit have raised inflation
fears and sapped demand for the debt.
The 10-year U.S. Treasury yield declined 0.06 percentage
point to 3.43 percent. The Treasury selloff on Tuesday dented
demand for euro zone government debt.
In currency trading, the dollar fell against the yen as the
return to Japan of company earnings at year-end outweighed
higher U.S. bond yields.
Commodity gains boosted the Australian and New Zealand
dollars, while the euro edged up against the U.S. dollar after
holding above its 200-day moving average.
Most analysts are bracing for more euro weakness in early
2011, but the currency's stubborn refusal to break below the
200-day moving average, now at $1.3084, has frustrated bearish
investors.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> off 0.46 percent at 79.993. The euro <EUR=>
rose 0.5 percent to $1.3182, while the dollar-yen exchange rate
<JPY=> dropped 0.7 percent to 81.88 yen.
In commodities, U.S. light sweet crude oil <CLc1> fell 34
cents, or 0.37 percent, to $91.15 per barrel, and gold <XAU=>
rose $5.86, or 0.42 percent, to $1411.80.
(Additional reporting by Brian Gorman and Atul Prakash in
London, and Steven C. Johnson and Chuck Mikolajczak in New
York; graphic by Scott Barber; Editing by Kenneth Barry)
