GLOBAL MARKETS-Asia to get some relief as Wall St, Europe rallies

Tue Jan 7, 2014 6:29pm EST

* Strong trade numbers burnish outlook for US, global growth

* Dollar rises anew on yen, should support Japanese shares

* ECB under pressure to do more as inflation hits record low

By Wayne Cole

SYDNEY, Jan 8 (Reuters) - Asian shares should benefit from improving risk appetite on Wednesday after strong trade data boosted expectations for U.S. growth while a lessening of sovereign strains in Europe lifted stocks there to the highest since 2008.

The dollar also got a leg up on the yen after the U.S. trade deficit shrank to its lowest in four years, thanks mainly to a renaissance in energy production, prompting analysts to revise up forecasts for economic growth.

Barclays, for one, doubled its estimate for last quarter and now predicts growth of 3 percent annualised.

Underlining the brighter mood were reports the International Monetary Fund will lift its forecast for global growth in about three weeks, breaking a depressingly-long run of downgrades.

All of which helped MSCI's all-country world stock index hit its highest since mid-2008. The Dow added 0.64 percent, while the S&P 500 rose 0.61 percent.

The optimism flowed through into Asia on Wednesday with Nikkei futures pointing to a firmer start and Australian shares gaining 0.6 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.14 percent.

European equity indexes rose to 5-1/2 year highs, led by a near 3 percent jump in Spain. The FTSEurofirst 300 index of top European shares gained 0.8 percent.

Sovereign risks across the euro zone's periphery have been receding as longer-term borrowing costs fall to multi-year troughs.

Yields on Irish 10-year debt dropped to their lowest in eight years after the country's first debt sale since exiting its EU/IMF bailout drew hot demand.

Yet data out Tuesday also showed core inflation in the EU slowed to a record low of just 0.7 percent in December, fanning fears of deflation ahead of the European Central Bank's policy meeting on Thursday.

It was worries about inflation falling too far that led the central bank to cut interest rates in November.

"This month's data will help reinforce expectations that the ECB are ready and willing to take whatever steps they deem necessary to prevent the economy from slipping into deflation," said economists at ANZ in a note to clients.

"While we think that the ECB will remain on hold this week, we are expecting a very dovish statement from ECB President Draghi."

The uncertainty kept the euro pinned at $1.3614 and not far from its recent one-month low at $1.3570.

The dollar got a boost from the U.S. trade numbers and climbed as far as 80.946 against a basket of currencies, reaching highs last seen in early December. It rallied to 104.68 yen and away from two-week lows of 103.91 set on Monday.

In contrast, investors dumped the Canadian dollar after the country reported a much larger trade deficit than anyone expected, in a blow to the economic outlook there.

That saw the greenback jump more than 1 percent to C$1.0782 , the highest since mid-2010, making the currency pair a standout mover overnight.

The improving news on global growth was generally positive for industrial commodities and oil.

Brent crude rose 72 cents to $107.45, breaking five straight sessions of losses. U.S. crude was up 25 cents at $93.92.

Gold fell as a stronger dollar and the rebound in U.S. stock prices prompted investors to take profits in bullion after five sessions of gains. Spot gold was at $1,231.15 an ounce, from a top on Tuesday of $1,245.25.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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