GLOBAL MARKETS-Improving world growth outlook lifts stocks and dollar

Wed Jan 15, 2014 8:15am EST

* European shares at 5-1/2 year high led by Dax

* Wall St expected to edge up, BoFA profits soar

* W.Bank upgrades outlook; China data lags forecasts

* Dollar extends gains on yen and euro

By Marc Jones

LONDON, Jan 15 (Reuters) - Signs the global economy is starting to move up a gear pushed world share markets higher on Wednesday, while the dollar made gains in the wake of surprisingly strong U.S. consumer spending figures.

European stocks had a fresh spring in their step as confirmation that private consumption in Germany picked up last year and looks set to help drive the economy this year, prompted the biggest rise of the year so far for Frankfurt's DAX .

The German benchmark's 1.3 percent gain was complimented by smaller but still significant gains on bourses elsewhere in the region, taking the FTSEurofirst 300 index to a fresh 5-1/2 year high.

"German consumption turned out to be especially robust last year," said Dekabank economist Andreas Scheuerle. "With the shackles of the sovereign debt crisis being loosened, this year should lead to considerably stronger growth."

Data confirmed that private consumption in Germany rose 0.9 percent in 2013, indicating an underlying strength in Europe's biggest economy even though headline GDP grew just 0.4 percent for the year.

Wall Street was seen opening up around 0.2 percent, with another flurry of earnings already in focus, as well as the NY Empire manufacturing survey, December PPI and Fed Beige Book data later.

Helping the better mood overall, the World Bank upgraded its forecast for global growth this year by two tenths of a point to 3.2 percent, and predicted a faster pace for both 2015 and 2016.

Its view was that the world economy had finally reached a "turning point" and though it trimmed forecasts for some developing nations, including China, overall emerging market growth was seen accelerating to 5.3 percent this year.

Data from China showed new bank lending and money supply growth missed forecasts for December, suggesting the central bank's efforts to put the brakes on credit expansion to contain debt levels is gaining traction.

Shares in Shanghai dipped 0.4 percent, but there was little obvious impact elsewhere in the region. Japan's Nikkei , once again helped by a weaker yen, jumped 2.5 percent.

"The performance of advanced economies is gaining momentum, and this should support stronger growth in developing countries in the months ahead," said World Bank chief Jim Yong Kim.

U.S. CONSUMPTION ON THE UP

The dollar was also back in vogue. It strengthened to 104.35 yen, leaving behind Tuesday's trough of 103.00. It also firmed against the euro with the single currency last at a session low of $1.3605 and 141.90 against the yen .

The U.S. currency had sprung ahead on Tuesday after retail data soothed worries raised by last week's disappointing payrolls report. While the headline measure of retail sales rose only a modest 0.2 percent, a core measure favoured by analysts beat all expectations with a jump of 0.7 percent.

"Growth in final sales, particularly household consumption, appears to have picked up sharply in Q4," said Barclays economist Peter Newland. The bank lifted its forecasts for U.S. economic growth in the quarter to an annualised 3.5 percent.

That combined with a burst of merger activity and earnings beats by Wells Fargo and JPMorgan, a trend that continued on Wednesday as Bank of America posted an eight-fold jump in profits.

CHOPPY MOVES

The better economic and earnings news left 10-year U.S. Treasury yields little changed at 2.8635 percent, while Germany's growth had minimal impact on Bund yields.

Spanish and Italian bonds continued their recent strong run as the European Central Bank said it would not employ 'mark-to-market' methods in its check on euro zone banks, easing fears local banks might have been forced into big periphery bond sales.

Price moves in U.S. debt have been choppy recently as the market tries to second-guess the speed of tapering by the Federal Reserve, and when it might actually start raising interest rates.

Two of the most hawkish Fed officials, Dallas Fed chief Richard Fisher and Charles Plosser at the Philadelphia Fed, on Tuesday advocated pushing on with tapering.

The more dovish head of the Chicago Fed, Charles Evans, will take his turn to speak later on Wednesday.

In commodity markets, a firmer dollar and rising equities shoved gold back to $1,237 an ounce, off a high of 1,255.00 hit Tuesday.

Oil prices were softer after a mixed performance overnight. U.S. crude steadied at $93.12 a barrel, while Brent eased 25 cents to $106.14.

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