World stocks buoyed by recovery hopes

London - World stocks headed for a fourth straight day of gains on Monday as investors banked on global economic recovery to trump concerns such as eurozone sovereign debt in providing a positive backdrop for corporate earnings.

The euro also followed up its best week this year against the dollar to rise around half a percent.

Although it has been extremely volatile, investors have launched a tentative rally since late May, lifting world stocks by about 6% from their lows and half embracing riskier assets.

MSCI's main emerging market stock index, for example, has gained more than 9% since hitting a year low on May 25. It was up 1.1% on Monday.

Part of the rally is due to the year's sell off - world stocks are down 6% year to day and 8.2% for the second quarter. But it is also the result of a belief among many investors that the underlying economic backdrop is relatively positive.

China, in particular, is seen as pulling world recovery forward, with the United States following.

"What is helping the market is the notion that a double dip recession is not a big risk," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin. "I think that is what the markets are latching onto."

The pan-European FTSEurofirst 300 was up 0.6%, driven by banking, mining and commodity stocks, all of which tend to gain when economic sentiment is on the plus side.

Earlier, Japan's Nikkei closed up 1.8%, driven higher by exporters, again a group with a high correlation to economic growth.

Euro rebound

Improved attitudes towards riskier assets also lifted the euro, hitting the dollar, in part because it prompted hedge funds to cover their short positions on the European currency.

The euro was trading with gains of around 0.6% versus the dollar at $1.2180 having traded as high as $1.2208 on trading platform EBS.

It has risen close to 3% over the past five trading sessions, but is still down around 15% year to date.

Overall, however, the negative sentiment about the euro, prompted by fears for eurozone debt and the economic cost of cutting it, remained.

"We've seen a good session for equities overnight. This looks to be a pro-risk move, driven by the higher-yielding currencies such as the Aussie. Fundamentally, nothing has changed for the euro," said Kenneth Broux, market economist at Lloyds Banking Group.

On eurozone bond markets, the two-year Schatz yield climbed 1.4 basis points to 0.48%, while the 10-year Bund yielded 2.602%, up 3.4 basis points as benchmark bond prices dropped, reflecting stronger appetite for riskier investments.

  - Reuters