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Equities buoyed by Nikkei high, dollar edges up

Electronic information boards display market information at the London Stock Exchange in the City of London January 2, 2013. REUTERS/Paul Hackett

By Sudip Kar-Gupta

LONDON (Reuters) - Japan's benchmark stock index hit a six-year closing high on Tuesday, helping prop up global equities, while the U.S. dollar inched higher, and some traders saw world stock markets extending their 2013 rally into next year.

Several European stock markets were closed on Tuesday for the Christmas holiday break, but pan-European equity indexes such as the FTSEurofirst 300 and the STOXX 600 nevertheless crept up in early morning trading.

That followed a rise in Asian stock markets, where Tokyo's Nikkei rose 0.1 percent to reach its highest closing level in six years.

The MSCI world equity index, which tracks shares in 45 countries, was steady at 402.82 points, while the MSCI Emerging Markets equity index rose 0.3 percent.

The MSCI global equity index has risen nearly 19 percent since the start of 2013, helped by injections of liquidity from the Japanese and U.S. central banks and by signs the global economy is recovering from the 2008 credit crisis.

Those central bank programs have dented returns on bonds and cash, driving many investors over to the better returns available from equities. SteppenWolf Capital chief investment officer Phoebus Theologites felt equities would remain the favored asset class for 2014.

"Equities could well have another 15 percent return next year. It's sentiment-driven, there are few other places where you will get those sort of returns," he said.


Investors kept a wary eye on China's benchmark money market rate, after rates in the interbank market spiked to their highest level since June in recent days due partly to seasonal factors that increase banks' demand for cash near the end of each quarter.

The People's Bank of China injected funds through normal channels for the first time in three weeks, although traders warned that conditions remained tense.

"The relief is quite palpable after the cash injection by the PBOC today," said Jackson Wong, Tanrich Securities vice-president for equity sales.

Another area of concern was civil unrest in South Sudan, which led to Brent crude remaining above $111 a barrel on Tuesday.

On the currency markets, the U.S. dollar rose slightly as upbeat U.S. consumption data fostered hopes of a solid recovery in the world's largest economy and reinforced convictions that the Federal Reserve will continue to tighten monetary policy.

The improving global economic environment, coupled with a rally on world stock markets which has seen U.S. equity indexes hit all-time highs, has driven investors away from traditional safe-haven assets such as gold.

Gold was hovering below $1,200 on Tuesday and looked likely to fall to its lowest level in six months. Gold is down nearly 30 percent for the year, and is set for its biggest annual decline in 32 years.

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(additional reporting by Lisa Twaronite, Wayne Cole, Blaise Robinson and Simon Falush)