* World stocks reach more than 2-1/2-year highs
* China raises bank reserve requirements
* Middle East tensions boost oil; gold at 5-week high
(Recasts, updates prices, adds details, comment)
By Wanfeng Zhou
NEW YORK, Feb 18 (Reuters) - Major stock markets rose to
over 2-1/2-year highs on Friday as upbeat corporate earnings
offset China's latest tightening move and oil prices rallied on
concerns Middle East political tensions could disrupt supply.
The MSCI all-country world stock index <.MIWD00000PUS> rose
0.4 percent to 348.21, after hitting its highest since late
July, 2008.
Robust corporate earnings and merger activity have fueled a
rally in developed stock markets. Some analysts cautioned that
a pullback may be possible, though they added that any retreat
would be limited.
U.S. stocks edged higher, with indexes headed for a third
week of gains, though volume has been light in the most recent
leg of the rally.
"I've never seen a market like this," said Paul Mendelsohn,
chief investment strategist at Windham Financial Services. A
market watcher for 35 years, he is taking profits in every area
but commodities.
No matter where we start out in the morning, buyers come
in," he said. "I'm showing by every technical and quantitative
standard I have, this market is at extreme levels."
The Dow Jones industrial average <> was up 45.79
points, or 0.37 percent, at 12,364.01. The Standard & Poor's
500 Index <.SPX> was up 2.50 points, or 0.19 percent, at
1,342.93. The Nasdaq Composite Index <> was up 6.73
points, or 0.24 percent, at 2,838.31.
Caterpillar Inc <CAT.N> rose 1.5 percent to $104.81 after
the equipment maker said machinery sales through dealers
accelerated in the three months through January. For details,
see []
"My outlook is cautiously optimistic," said Don Wordell,
portfolio manager of RidgeWorth MidCap Value Fund in Orlando,
Florida.
World equities earlier came under pressure after China
raised banks' required reserves half a percentage point to 19.5
percent for the biggest banks, the second such increase this
year as government continues the fight against inflation.
[]
"They have been trying to curb liquidity for some time, so
little surprise and not as bad as a benchmark rate rise, but
still slightly weighing on sentiment," said Andrey Kryuchenkov
from VTB Capital.
China has increased interest rates three times in the past
four months and ordered banks to issue fewer loans. But its
annual inflation still rebounded to 4.9 percent in January from
4.6 percent a month earlier.
European shares <> fell slightly, though still
hovering near 29-month highs, with miners among the worst
performers after China's tightening move.
In Paris, China rejected plans to use real exchange rates
and currency reserves to measures global economic imbalances,
casting doubt on the ability of Group of 20 major economic
powers to reach agreement at a meeting on Friday.
OIL IN FOCUS
Crude oil prices jumped after Egypt approved the passing of
two Iranian warships through the Suez Canal. Israel has called
Iran's plans to send navy ships through the Suez Canal a
"provocation". []
U.S. March light crude futures rose $1.28 to 87.65 a barrel
<CLc1>. Brent crude futures <LCOc1> gained 33 cents to $102.92
a barrel in volatile trading.
Spreading unrest in the Middle East and North Africa also
stoked fears of potential disruption to oil flows and pushed up
prices.
At least two people were killed in Yemen on Friday when
clashes broke out between police and protesters, witnesses
said, and thousands turned out in Bahrain and Libya to mourn
protesters killed in government crackdowns. []
Tensions in the Middle East pushed safe-haven gold to a
fresh five-week high at $1,390.40 an ounce. Spot gold <XAU=>
last traded at $1,389.30. Silver hit fresh 31-year highs.
The euro <EUR=> rose 0.5 percent to $1.3663 after a senior
European Central Bank official was quoted in a media report as
saying that the central bank may have to raise interest rates
as global inflation pressure mounted.
Talk that the ECB was buying Portuguese government bonds
also lifted the euro.
Sterling <GBP=D4> hit a two-week high versus the dollar
after UK retail sales rebounded far more than expected in
January, adding fuel to talk of a Bank of England interest rate
hike in the coming months.
(Additional reporting by Caroline Valetkevitch and Julie Haviv
in New York and Jessica Mortimer in London; Editing by Andrew
Hay)
