GLOBAL MARKETS-Japan market recovery helps shares bounce back

Tue Mar 22, 2011 8:14am EDT

* World stocks .MIWD00000PUS rise

* Japan bounces back 4 pct as markets return

* Expected ECB rate hike propels euro higher

* Eyes on Libya, Japan

(Adds comment, updates prices)

By Pratima Desai

LONDON, March 22 (Reuters) - World stocks put in solid gains on Tuesday as concerns eased about the impact of Japan's triple disaster on world growth prospects and traders in Tokyo returned from a national holiday to recoup some of last week's losses.

Buyers expecting the economy will also ride out continuing unrest in the Middle East emerged to tap cheap valuations, while the euro rose to its highest in four and a half months against the dollar.

The conflict in Libya, while unrest bubbles in other Arab states, kept oil prices high and boosted gold, used as a hedge against rising security concerns. [ID:nTOPMEAST]

But after a strong sell-off following Japan's earthquake and tsunami, investors have begun to return to equity markets. Reports of progress in containing radiation leaks at the Fukushima plant helped Tokyo shares rally more than 4 percent .N225.

"The global multispeed recovery remains on a steady path, with most economies set to experience at- or near-potential growth in 2011," Roubini Global Economics macroeconomic team said in a note.

The pan-European FTSEurofirst 300 .FTEU3 index of top shares was 0.2 percent higher at 1,110.23 points at 1141 GMT after surging 1.8 percent in the previous session, buoyed by merger and acquisition news in the telecom sector. [.EU]

"If there is no escalation of violence in Libya and no sudden twist in the Japan nuclear reactor situation, it looks like we will recoup the losses since the Japan crisis," Angus Campbell, head of sales at Capital Spreads said.

The MSCI global stocks index .MIWD00000PUS was up 0.6 pct.

U.S. stocks were set to open little changed. [.N] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Dollar index weekly trendline: r.reuters.com/jum68r Japan current account: link.reuters.com/hac68r Graphic on intervention: link.reuters.com/sub68r Earthquake in graphics r.reuters.com/fyh58r Yen stop-loss selling link.reuters.com/fac68r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

GOLD AT NEW RECORD

In currency markets the euro EUR= hit $1.4249, its highest since November, boosted by expectations the European Central Bank will raise interest rates next month, which prompted demand from longer-term "real money" investors.

"Euro/dollar is supported after (ECB President Jean-Claude) Trichet continued to signal a rate hike in April," said Mic Ingenuus, currency strategist at Nordea in Copenhagen.

The latest batch of comments from policymakers on Monday showed them sticking to a hard line on inflation as well as language which has traditionally been used to signal a rise in rates was imminent. [ID:nLDE72K0ZO]

The yen JPY= steadied as concerns about possible further intervention by the Group of Seven major economies to undermine it against the dollar and other currencies stopped traders from trying to push the Japanese currency higher. [FRX/]

"We see the G7's decision to intervene as a game-changer for (dollar/yen). Joint intervention may have a delayed impact, but it tends to be associated with a change in direction," Standard Chartered said in a note.

Worries about the disruption of crude supply are expected to underpin oil prices, even though some investors were taking profits in anticipation of a slowdown in air strikes against Libya. [ID:nLDE72L00C]

Brent crude for May LCOc1 earlier touched a $115.50 earlier -- less than $5 from a 2-1/2-year high near $120 hit last month. It was last at $114.73. [O/R]

"It now seems likely that there will be a significant loss of Libyan oil supplies for some time," said Ric Spooner, chief market analyst at CMC Markets. "This will reduce the buffer of excess capacity and increase the oil market's vulnerability to any new supply shocks which may emerge."

JPMorgan in a note said: "A resolution to the Japanese nuclear crisis would be bullish for crude prices near term as it would shift the focus to Japan's reconstruction."

(Additional reporting by Jeremy Gaunt, Jessica Mortimer, Rujun Shen, Joanne Frearson and Alejandro Barbajosa; editing by Patrick Graham)

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