* Gold rushes higher amid brightened economic signs
* MSCI world equity index up 1.93 percent
* Dollar slumps as safe-haven demand dissipates
By Al Yoon
NEW YORK, Oct 6 (Reuters) - Gold soared to a record high
and global shares jumped on Tuesday after Australia became the
first G20 member to raise interest rates in more than a year,
boosting confidence the global economic recovery is on track.
The dollar slumped as the optimism diminished safe-haven
demand for the U.S. currency.
The Australian dollar hit a 14-month high against the U.S.
currency after the country's central bank raised interest rates
by a quarter point to 3.25 percent and heralded more rate
rises. That and other signals of global economic progress,
including recent economic data, are supporting asset prices
broadly but may soon create disparities for investors.
"The big story is Australia, as other countries will now
seek to raise rates, in contrast to the United States where the
Fed is expected to raise rates last," said Lee Hardman,
currency analyst at Bank of Tokyo-Mitsubishi UFJ.
In the short term, the dollar may remain under pressure as
risk sentiment is improving and capital flows were turning
towards higher growth and emerging assets, he said.
The dollar move fueled a rally in gold, which is also seen
as a hedge against chances of stronger economic growth sending
inflation higher around the globe, said Tom Bentz, an analyst
at BNP Paribas Commodity Futures.
"Whether inflation becomes a serious threat or not is being
challenged here," Tom Sowanick, co-chief investment officer at
OmniVest Group LLC in Princeton, New Jersey.
Spot gold prices <XAU=> rose $25, or 2.46 percent, to
$1,041.70 an ounce, after earlier touching a record $1,043.45.
The dollar lost 0.42 percent against a basket of major
currencies <.DXY>. The Australian dollar rose as high as
$0.8919<AUD=>, and was last quoted at $0.8888.
The euro <EUR=> gained 0.44 percent to $1.4713 and the
dollar fell 0.82 percent to 88.77 yen <JPY=>.
RATE HIKE, COMMODITIES SPUR STOCKS
The optimism fueled by Australia's rate hike and the rise
in commodity prices spurred gains in stocks.
The three major U.S. stock indexes all rose more than 1
percent, also boosted by the quarterly earnings season, which
kicks off on Wednesday when aluminum producer Alcoa Inc <AA.N>
is to announce results after the closing bell.
Alcoa shares gained 3.5 percent to $13.89, while
Caterpillar Inc <CAT.N>, the world's largest maker of heavy
machinery and earth-moving equipment, added 1.87 percent to
$51.70 and was a top boost to the Dow industrials.
Freeport-McMoRan Copper & Gold Inc <FCX.N> shot up 3.42
percent to $69.61.
The Dow Jones industrial average <> rose 1.37 percent
to 9,731.25 and the Standard & Poor's 500 Index <.SPX> climbed
1.37 percent to 1,054.72.
In Europe, financial and commodity-related shares helped
drive the pan-European FTSEurofirst 300 index <> up 2.22
percent.
Miners' shares also surged on the back of the rally in
gold, with BHP Billiton <BLT.L> and Rio Tinto <RIO.L> gaining
4.6 percent and 6.9 percent, respectively.
The MSCI world equity index <.MIWD00000PUS> rose 1.93
percent.
"I'm encouraged a commodity-exporting country is sensing
enough economic activity to raise rates," said Jack Ablin,
chief investment officer at Harris Private Bank in Chicago,
referring to Australia.
MORE RATE HIKES SEEN
Australia's move is expected to be followed by South Korea,
whose won currency also hit a one-year high against the U.S.
dollar before retreating on suspected intervention by the
authorities.
The Reserve Bank of Australia, in announcing its rate hike,
said it was safe to row back on stimulus now that the worst
danger for the economy had passed. Investors are now pricing in
at least one more rate rise by Christmas and rates above 4
percent in a year.
"The real news is the upbeat outlook that accompanied the
move, with a bullish growth forecast suggesting further hikes
are more than likely. Now that the cycle of global loosening is
broken, Norway will almost certainly be next at the end of the
month and attention will turn to Canada and New Zealand,"
analysts at Royal Bank of Canada said in a client note.
"We see scope for the NZ dollar and Canadian dollar rallies
as those hikes start to be priced in."
The U.S. dollar fell earlier also after Britain's
Independent newspaper cited unidentified sources in Gulf Arab
states and Chinese banking sources in Hong Kong in a report on
a possible move to replace the dollar in oil trading. France's
economy minister, Christine Lagarde, later dismissed the report
as "speculation," saying that a move to replace the dollar "is
not on the agenda."
U.S. light sweet crude oil <CLc1> rose 63 cents, or 0.89
percent, to $71.04 per barrel.
U.S. Treasury debt prices dropped amid increased supply of
the securities reduced safe-haven demand as the stock market
rallied. Benchmark 10-year U.S. Treasury notes <US10YT=RR>
dropped 9/32, sending their yields higher by 0.03 percentage
point, to 3.26 percent.
(Additional reporting by Natsuko Waki in London and Rodrigo
Campos in New York; Editing by Leslie Adler)
