GLOBAL MARKETS-German government deal drives euro, helps stocks
* Major German parties reach deal to form coalition government
* Euro at four-year high vs yen, near one-month high vs dollar
* Markets wary over rising tension in East China Sea
NEW YORK, Nov 27 (Reuters) - A German coalition government agreement lifted the euro to a four-year high against the yen on Wednesday and buoyed stocks around the world, already well bid on central bank liquidity.
The long-awaited coalition pact between German Chancellor Angela Merkel's conservatives and the center-left Social Democrats was sealed early on Wednesday, paving the way for a government to be sworn in by the end of the year.
U.S. stocks were little changed, with investors finding few reasons to buy before Thursday's U.S. Thanksgiving holiday and with benchmark indexes near historic highs.
"There won't be any news that will move stocks but there is a general bias in equity markets to move higher," said John Rutledge, chief investment strategist for Safanad, a New York- based private investment firm.
"There is not much action," Rutledge said. "People are putting their turkeys into the oven."
The Dow Jones industrial average was down 3.38 points, or 0.02 percent, at 16,069.42. The Standard & Poor's 500 Index was up 1.30 points, or 0.07 percent, at 1,804.05. The Nasdaq Composite Index was up 16.30 points, or 0.41 percent, at 4,034.05.
Details of the new German government's policies were sparse but included raising the minimum wage and increasing pensions, which should help boost activity in Europe's largest economy.
The deal must still be voted on by SPD members, but ending the political stalemate has amplified the positive tone in equity markets set by expectations the super-loose monetary policies of major central banks would continue into next year.
The euro peaked at 138.80 yen, its best level since June 2009, and came close to a one-month high of $1.3612 against the dollar.
The MSCI world equity index was up 0.2 percent on the day to just over 400 points, close to a level it last reached at the end of 2007.
Europe's main stock markets all edged higher on the news of Germany's grand coalition, helped by solid earnings from Belgian discount grocer Colruyt.
The pan-European FTSEurofirst 300 was up 0.5 percent , taking its year-to-date gains to around 14.4 percent and keeping it on track for its best year since 2009.
Wall Street has soared this year, largely on expectations of continued stimulus from the Federal Reserve. Both the Dow and S&P 500 have risen more than 20 percent in 2013, hitting a series of all-time highs, while the Nasdaq on Tuesday closed above 4,000 for the first time since 2000.
ECB READY TO ACT
Signs that the European Central Bank could move early to implement fresh measures to support the struggling euro zone economy and tackle deflationary pressures were also growing, though inflation data on Friday is expected to show a small pick-up.
German newspaper Sueddeutsche Zeitung reported on Wednesday that the central bank was considering a new long-term liquidity operation, which would be available only to banks that agreed to use the funding to lend to businesses.
The report follows a string of comments by ECB policymakers in the past week that they stood ready to act. However, many see next week's ECB policy meeting as coming too soon after the bank earlier this month cut rates to a record low.
Debt markets showed little reaction to the developments. German Bund futures slipped 13 ticks to 141.57.
The benchmark 10-year U.S. Treasury note was down 14/32, the yield at 2.7445 percent.
Outside Europe, tensions rose over Beijing's demands that airlines inform it when they plan to fly over disputed islands in the East China Sea. The United States flew two unarmed B-52 bombers over the islands, while ANA and Japan Airlines stopped sending Chinese authorities their flight plans for routes that pass through the zone.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 percent. Shares in Japan weakened 0.4 percent to slip further from a six-month peak touched on Monday .
In commodities trading, Brent crude was capped under $111 a barrel after oil industry group American Petroleum Institute reported a 6.9-million-barrel rise in crude oil inventories, far more than the 600,000 barrels expected by analysts.
Investors have also concluded that a deal between Iran and world powers over its nuclear efforts, which had caused a sharp fall in oil prices, will not bring an immediate increase in crude supplies.