GLOBAL MARKETS-World stocks race to 14-mth high after BofA

Thu Dec 3, 2009 4:29am EST

* MSCI world equity index hits 14-month high of 302.45

* BofA move to repay taxpayer funds boost optimism

* Oil rises; dollar, yen under pressure

By Natsuko Waki

LONDON, Dec 3 (Reuters) - World stocks hit a fresh 14-month high on Thursday while oil also rose after Bank of America said it would repay $45 billion of taxpayer bailout funds in a move which injected optimism into the financial sector.

The low-yielding dollar came under pressure, sending dollar-priced gold to record highs above $1,225 an ounce, as BofA news encouraged investors to chase equities, commodities and other risky assets.

Bank of America (BAC.N) has launched the sale of $18.8 billion worth of securities, which are expected to be priced on Dec. 7, according to a term sheet obtained by Reuters.

Later on Thursday, the European Central Bank is expected to reveal new staff forecasts which would underpin its gradual process of phasing out its financial crisis support. The ECB is expected to keep its key interest rate on hold at 1 percent.

World stocks have erased all the losses suffered after Dubai announced a standstill last week on billions of dollars of debt held by its conglomerate Dubai World, with investors shifting focus back to risk-friendly expectations that the world's central banks would keep interest rates low for some time.

"Bank of America paying back its debt is positive," said Bernard McAlinden, investment strategist at NCB Stockbrokers.

"(The ECB) may decide to make their liquidity provision less generous, but that's not a signal that they're going to raise interest rates soon." MSCI world equity index .MIWD00000PUS rose 0.7 percent, hitting its highest level since late September 2008.

The FTSEurofirst 300 index .FTEU3 rose 0.9 percent, while emerging stocks .MSCIEF rose 0.7 percent.

The Markit survey showed the euro zone's service sector expanded for the third consecutive month in November, underpinning the recovery optimism, although the expansion was at a slower pace than reported early last week.

"We remain positive on European equities over our investment horizon of 12 months," Standard & Poor's European Investment Policy Committee said, adding that its 2010 year-end forecast implied a 12 percent upside from current levels.

"We believe that the credit markets are more likely capable than not of absorbing slated government debt issuance, given that long-term rates are still low and inflation expectations are stable."

U.S. crude oil CLc1 rose more than 1 percent to $77.42 a barrel after slipping 2.3 percent a day earlier on a larger-than-expected build in U.S. crude inventories.

German government bond futures FGBLc1, the euro zone benchmark, fell 44 ticks as markets braced for around 8 billion euros of debt supply from France and Spain.

The dollar .DXY fell 0.3 percent against a basket of major currencies while the yen fell half a percent to 87.87 per dollar JPY=. (Additional reporting by Brian Gorman; Editing by Ruth Pitchford) ((natsuko.waki@reuters.com, +44 207 542 6721, Reuters Messaging: natsuko.waki.reuters.com@reuters.net))

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