* World stocks set for third straight quarterly rise
* Crude up 22 pct this qtr -- best major performing asset
* Yen hits 10-month low vs euro
By Dominic Lau
LONDON, March 31 (Reuters) - World stocks climbed to a new
three-week high on Thursday and the euro inched higher ahead of
the publication of Irish bank stress tests aimed at capping one
of the major risks in Europe's debt crisis.
Stocks have now recovered all of the losses from a sharp
sell-off after disaster struck Japan earlier this month and are
heading for their third quarterly gain in a row thanks largely
to improving U.S. growth.
The yen fell to a fresh 10-month low versus the euro and
touched a three-week trough against the dollar as expectations
grew that Japan would lag the euro zone and U.S. central banks
in raising interest rates. So far this year, the euro has risen
nearly 8 percent against the yen.
"Rate differentials are playing a big role, especially as
there is no probablility for the BOJ to become more hawkish,
even in the medium to long-term." said Manuel Oliveri, currency
strategist at UBS in Zurich.
"There is scope for rate expectations to stay supported in
the euro zone. German demand and the service sector is strong so
price rises are likely to become domestically driven, not just
commodity driven."
Europe's FTSEurofirst 300 <> share index was flat,
while Irish shares <.ISEQ> rose 0.8 percent and yields on
Ireland's 10-year government bond <IE10YT=TWEB> were steady at
10.18 percent.
The Irish Independent said Dublin's stress tests would show
an additional 20-25 billion euro hole in its banks capital --
broadly in line with expectations -- and will be followed by a
radical restructuring of the sector. []
The euro was up 0.3 percent at 117.41 yen <EURJPY=> and the
dollar was down 0.1 percent at 82.80 yen <JPY=> after reaching
83.21 yen earlier.
OIL TENSIONS
Brent crude rose towards $116 a barrel and set to become the
best performing major asset in the first quarter of 2011 as
political unrest in the oil-rich Middle East and North Africa
ignited supply concerns.
Higher oil prices, seen as a tax on global growth, have not
yet knocked world equities off their stride. Global equities
measured by MSCI All-Country World Index <.MIWD00000PUS>
advanced 0.3 percent, on track for a 4.2 percent gain for
January-March -- the third straight quarterly rise.
MSCI emerging markets index <.MSCIEF> rose for the third
day, up 0.7 percent and were on track to gain 1.3 percent for
the first quarter, recovering losses from earlier this year when
investors shifted their money to developed market equities on
concerns over inflation in developing countries.
However, emerging market shares still underperformed
developed market equities, whose strong performance was mainly
driven by gains in U.S. stocks. The Dow Jones industrial average
<> is up 6.7 percent this quarter.
"While we remain comfortable with being overweight
financials, we see less need in making such hard distinctions
now given the improving background in China and the reduced
scope for economic surprise in the U.S. in the short term,"
Deutsche Bank said in a note.
"Increasingly we find ourselves looking for opportunities
across the cyclical stocks as whole, both global and domestic."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Asset returns in Q1 2011 graphic: http://r.reuters.com/wur78r
Key events in Q1 2011 timeline: http://r.reuters.com/saj68r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
JAPAN AVERSION
Japan's Nikkei average <> added 0.5 percent, with fund
managers shifting into construction stocks and smelters while
moving away from domestic-demand shares on expectations for a
hike in demand as Tokyo said it may spend $120 billion on
reconstruction.
Japanese fund managers cut their global stock weighting to a
12-year low in March, while raising their bond weighting to an
all-time high as they reduced risk positions after the
earthquake, a Reuters survey showed. []
Brent crude <LCOc1> rose 0.6 percent towards $116 a barrel,
on track for a 22.3-percent gain for January-March -- the
biggest quarterly rise in almost two years. The global economic
recovery also underpinned prices.
However, copper <CMCU3> was down 1.7 this quarter.
Yields on benchmark 10-year U.S. Treasuries <US10YT=RR>
eased 1 basis point to 3.4331 percent. They are still up about
14 basis points from the beginning of the year though off a
nine-month high of 3.7698 percent.
(Additional reporting by Neal Armstrong; editing by Patrick
Graham)
