By Wayne Cole
SYDNEY (Reuters) - An index of global stocks nestled near record highs on Friday while gold celebrated its biggest one-day rise in nine months as markets wagered monetary policy would stay super loose in the United States, Europe and Japan for a long time to come.
Investors had piled into bullion while selling U.S. government debt on the premise the Fed might be comfortable with higher inflation if it meant faster economic growth.
Spot gold was enjoying the view at $1,315.00 an ounce having been as far as $1,321.70 at one stage on Thursday when it climbed 3.3 percent.
Traders also said a major hedge fund had cut back a large short position in the precious metal which pushed prices above $1,300 an ounce and tripped a host of stop-loss buy orders.
Stocks were in demand with MSCI's all-country world index, which includes about 85 percent of global investable equities, passing its previous all-time high set in November 2007.
Japan's Nikkei ended steady after touching a fresh five-month peak, while the broader brought its gains to more than 10 percent in just the past four weeks.
"The good mood is still lingering," said Kyoya Okazawa, head of global equities at BNP Paribas. "Not just foreign investors but also long-term domestic investors like pension funds have been buying as well."
MSCI's broadest index of Asia-Pacific shares outside Japan ran out of steam, easing 0.4 percent on losses in South Korea and China.
Financial spreadbetter IG expected Britain's FTSE 100 to open up 0.1 percent, while Germany's DAX and France's CAC 40 were seen little changed.
Wall Street had finished mixed, though data on jobless claims and regional U.S. manufacturing continued to show improvement. The Dow had ended up 0.09 percent, while the S&P 500 gained 0.13 percent and the Nasdaq lost 0.08 percent.
The revival in risk appetite follows Wednesday's decision by the U.S. Federal Reserve to recommit to keeping rates near zero for some time to come.
Crucially, Chair Janet Yellen sounded unconcerned by inflation despite a recent pick-up in price pressure, surprising many who had thought the central bank would take a more hawkish turn.
TAKING INFLATION PROTECTION
"The dismissal of the recent up-shift in inflation readings as 'noise' was the biggest revelation," said William O'Donnell, head of U.S. government bond strategy at RBS.
"The Fed leadership is so unsure about the sustainability of the recovery that they are willing to wait for economic growth numbers and labor market indicators to beat them over the head before they consider removing emergency stimulus."
As a result the market has pushed out the day when the Fed might hike its funds rate, while also taking insurance against higher future inflation by buying gold and selling longer-dated Treasuries.
Futures contracts that aim to map the course of the Fed funds rate again suggest no lift in rates until at least mid-2015. The June contract for next year now implies a rate of 31.5 basis points compared to 37.5 on Wednesday. Currently the funds rate is around 9 basis points.
Investors are also demanding higher returns on long-term U.S. debt to compensate for the risk of higher inflation, so steepening the yield cure.
Yields on 30-year bonds have swung up to 3.46 percent, from a low of 3.35 percent early in the week, while rates on 10-year paper reached 2.62 percent.
In currencies, the Norwegian crown stole the limelight by plunging over 2 percent on Thursday after the country's central bank hinted at the possibility of a cut in interest rates, stunning markets that had wagered the next move would be up.
The dollar surged to 6.1197 crowns NOK= in its biggest one-day gain in more than a year, while yields on short-term Norwegian debt tumbled 20 basis points.
Moves elsewhere were pedestrian in comparison, with the dollar soggy on the yen at 101.88 JPY= while the euro edged up on the dollar to $1.3624.
The dollar also lost ground against a basket of major currencies, while the British pound reached heights not seen since late 2008 above $1.7000.
Brent oil was close to a nine-month high above $115 a barrel on concerns heavy fighting in Iraq could limit oil supply from OPEC's second-biggest producer.
The U.S. crude oil futures contract for August eased 7 cents to $106.12 a barrel.
(Editing by Eric Meijer & Shri Navaratnam)