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GLOBAL MARKETS-Stocks gain, dollar falls as Fed seen staying course

* Focus turns to Fed stimulus prospects after government


* China Q3 growth quickens to 7.8 pct year over year

* World stock markets at 5-year high, Google hits $1,000


* Euro hits 8-1/2-month high vs dollar

By Herbert Lash

NEW YORK, Oct 18 (Reuters) - Global stock markets climbed to

a five-year high on Friday as investors bet the Federal Reserve

would extend its stimulus policy well into 2014, but uncertainty

over when U.S. interest rates will rise caused the dollar to

sink to an eight-month low.

Better-than-expected results from Google Inc and Morgan

Stanley also helped lift stocks on Wall Street, with shares of

the Internet search and advertising company surging past the

$1,000 mark for the first time.

An acceleration in China's giant economy provided another

boost for equity markets, as well as for commodities such as oil

and copper, as the prospect of an extended spell of ultra-easy

money policy and improving growth buoyed investor sentiment.

MSCI's index that tracks the equity performance of 45

countries rose 0.7 percent to highs last seen in

January 2008, while the broad Stoxx Europe 600 rose for

a seventh successive day, its longest winning streak this year.

A last-minute deal by U.S. lawmakers this week to avert a

debt default and re-open shuttered government offices also has

bolstered investor confidence, pushing the broad S&P 500 to a

record close on Thursday and new highs on Friday.

But analysts said concerns about the negative impact of the

shutdown on the U.S. economy and the likelihood the Fed would

leave its bond-buying program intact until well into 2014 would

weigh on the dollar, with the euro potentially rising to $1.40.

On the company earnings front, 98 companies in the broad S&P

500 index have reported third-quarter results so far, with 62

percent beating estimates by an average of 4.3 percent. Since

1994, 63 percent of companies have beat earnings estimates.

Google gained 13.8 percent to $1,011.408, while

Morgan Stanley rose 2.6 percent to $29.69. Google's surge

contributed to almost half of the more than 1 percent gain in

the Nasdaq composite index.

"Surprises have been broad-based with all of the nine

sectors surpassing their forecasts," said Jonathan Golub, chief

U.S. market strategist at RBC Capital Markets in New York.

The Dow Jones industrial average closed up 28.00

points, or 0.18 percent, at 15,399.65. The Standard & Poor's 500

Index rose 11.35 points, or 0.65 percent, to 1,744.50.

The Nasdaq composite added 51.13 points, or 1.32

percent, to 3,914.28.

The Nasdaq composite is trading at levels last touched in

September 2000 but is still 24 percent from its peak before the

tech bubble burst earlier that year.

European shares rose to a five-year high after robust growth

data from China for the third quarter, which boosted shares of

luxury goods companies and miners.

The Stoxx Europe 600 index extended its rally to

seven days, rising 0.79 percent, while the larger FTSEurofirst

300 of leading European shares rose 0.76 percent to

close at 1,277.70, a new five-year high.

The dollar fell against a basket of currencies in choppy

trade, pushing the dollar index down 0.03 percent to

79.626. The dollar eased on expectations the Fed may delay

scaling back its stimulus, which keeps interest rates down.

"The real economy has been negatively impacted by the

government shutdown and uncertainty of the debt crisis, all of

which pushes out eventual Fed policy normalization, which is bad

for the dollar," said Omer Esiner, chief market analyst at

Commonwealth Foreign Exchange in Washington.

The euro rose 0.07 percent to $1.3683, while the

dollar was 0.09 percent lower against the Japanese yen at


German Bunds rose on the view that the stop-gap U.S. debt

deal may hurt the longer-term growth prospects of the world's

largest economy and push the Fed's bond-buying program into next


Bund futures rose 37 ticks to settle at 140.05.

Brent crude futures rose toward $110 a barrel, supported by

a weak U.S. dollar and growth data from China.

Brent crude settled up 83 cents at $109.94 a barrel,

while U.S. crude oil rose 14 cents to settle at $100.81.

Investors were relieved by data showing China's economy grew

at its fastest pace this year as firmer foreign and domestic

demand lifted factory output and retail sales.

China's CSI300 index climbed 0.7 percent, while

Australian shares jumped to their highest level since

June 2008. Australian exports are closely linked to China's

economic fortunes.

Benchmark 10-year U.S. Treasuries fell 1/32 to

yield 2.5886 percent.