GLOBAL MARKETS-German bailout fund approval lifts global stocks, euro

* Germany's Constitutional Court backs ESM plans
* MSCI global index hits 5-month high
* Euro at 4-month high v dlr
* Demand for German government bonds dips
* U.S. markets expected to open up, iPhone, Fed awaited

By Marc Jones
LONDON, Sept 12 (Reuters) - Germany's top court lifted
global shares to a five-month high, boosted Italian and Spanish
bonds and sent the euro to its highest since early May, by
finally giving its go-ahead to the euro zone's new
crisis-fighting fund.
German approval of the 700 billion euro European Stability
Mechanism (ESM) was crucial to boost the euro zone's
crisis-fighting powers and a key requirement for the European
Central Bank's new plan to buy the bonds of struggling euro
members.
European shares were up 0.5 percent after the
decision, having been up just 0.07 percent beforehand. The MSCI
global share index which is up 6.5 percent since
the end of July, hit a five-month high of 331.99 points before
dipping back slightly as bouts of profit-taking set in.
"The (equities) market will rally on this, and the
financials will lead this rally," said Gerard Lane, Equity
Strategist at Shore Capital. "The fear was they were going to
say 'nein', so the 20 percent down in the market that we could
have had is off the table."
Investors breathed a sigh of relief that the ESM can finally
take effect after months of delay, with its ability to buy bonds
directly from governments - the ECB can only buy from bond
holders - and help recapitalise struggling banks.
The euro has been the best performing major global currency
since ECB President Mario Draghi pledged to do whatever was
necessary to "preserve" it back at the end of July.
It hit a four-month high of $1.2906 versus a broadly weaker
dollar in anticipation of a favourable decision from the
Karlsruhe-based German Constitutional Court and rose to a
two-month high against sterling after the ruling.

The rises pushed it through various levels of technical
resistance, and analysts were eyeing further gains.
"We would expect the euro-dollar recovery to extend further
in the near term. We maintain our buy on pull-backs strategy,
although pull-backs have remained very limited so far,"
strategists at Morgan Stanley said in a note.

PERIPHERAL VISION
Bond markets also reacted positively to the decision. Bund
futures, traditionally an indicator of risk-adversion, fell to
their lowest level since the start of July. In contrast Spanish
and Italian bonds rallied, with yields down 10 and 6 basis
points, respectively.
"It's the long end (of bond maturities) now where we need to
see a move, but for that to happen we need the country (Spain)
to activate the (ECB) programme and clarity from the EFSF/ESM on
whether they want to support the long end," said ING strategist
Alessandro Giansanti.
That could be edging closer. Spain continues to study the
price it will have to pay for seeking help from the ECB's
bond-buying programme, but improved market conditions may make
aid unnecessary, Prime Minister Mariano Rajoy told Spanish
parliament.
Adding to the good mood, euro zone authorities also made
progress with their plans to synchronise banking supervision and
the way they deal with bankrupt institutions.
European Commission President Jose Manuel Barroso outlined
the proposal in his annual "state of the union" address in
Strasbourg, plans which would see the ECB take over the
monitoring of all banks in the bloc.

Oil prices were also lifted by the euro zone euphoria. Brent
crude oil rose more than $1 per barrel to a one-month high,
while labour unrest sweeping across South Africa's mining sector
pushed up platinum prices.
Geopolitical risk, which has been supporting oil since
tension between Iran and Israel escalated earlier this year,
came back into focus on reports the U.S. ambassador to Libya and
three other embassy staff had been killed in a rocket attack.

"HOPIUM" HIGH
U.S. stock markets were expected to grab the baton from
Europe and open in positive territory.
Hopes that the Federal Reserve will lay out plans on
Thursday to inject another dose of stimulus into the economy
helped the Dow industrials index to its highest level in nearly
five years on Tuesday.
The unveiling of Apple's latest incarnation of its
blockbuster iPhone is the top event of the day for investors and
tech-geeks alike. It is widely expected to offer 4G technology
for the first time and a bigger 4-inch screen.
Facebook will also be in the spotlight after CEO Mark
Zuckerberg soothed investors in his first major public
appearance since the social network's rocky May IPO, with hints
of new search and mobile-phone-focused products.
"Markets are riding high on 'hopium'," said Kit Juckes at
Societe Generale. "We didn't listen to the conditions that came
with the German constitutional court decision, we are now
heading towards the Fed, so the Americans are going to come in
to find risk is firmly on."