World shares hit 1-month high; dollar, yen firm

By Atul Prakash

LONDON (Reuters) - World stocks hit a one-month high on Friday on growing optimism that the earnings season may turn out to be better than expected, while investors set their eyes on giants such as Citigroup (C.N) for clearer market trend.

Reassuring quarterly earnings from JPMorgan (JPM.N), Goldman Sachs (GS.N) and Intel (INTC.O) earlier this week boosted hopes about an economic recovery. Bank of America (BAC.N) and General Electric (GE.N) were due later along with Citi.

European shares recorded a fifth straight day of gains, with the FTSEurofirst 300 .FTEU3 index of top European shares rising 0.5 percent. Britain's FTSE100 .FTSE, Germany's DAX .GDAXI and France's CAC-40 .FCHI climbed between 0.5 percent and 0.9 percent.

MSCI global equities index .MIWD00000PUS, which has gained 6.5 percent so far this week on corporate earnings results, was up 0.2 percent after touching its highest level since June 15. Emerging stocks .MSCIEF also hit a one-month peak.

"The markets have been given a much needed shot in the arm by the encouraging set of numbers coming out from the banking sector," said Owen Ireland, analyst at ODL Securities in London.

"Whilst confidence levels can often be perception, the reality is that we have seen a consistent set of results from some of the worlds' largest institutions."

Financial shares were among top gainers in Europe, with HSBC (HSBA.L), Barclays (BARC.L), Lloyds (LLOY.L), BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) up 0.1-1.5 percent.

U.S. stocks rallied for a fourth day on Thursday after JPMorgan's strong results, while Japan's Nikkei .N225 average closed up 0.6 percent on Friday, but gains were capped by political uncertainty ahead of an election next month.

Some analysts said that it was too early to be too optimistic about the global economy as data was still ringing warning bells and some companies face a liquidity crunch.

A survey showed on Thursday that factory activity in the U.S. Mid-Atlantic region contracted for a 10th consecutive month in July, posting a worse than expected decline.

And CIT Group Inc CIT.N was in discussions on Thursday with potential lenders to secure financing, after the collapse of rescue talks with the government left the 101-year-old U.S. lender to hundreds of thousands of small and medium-sized businesses on the brink of bankruptcy.

"The market is looking for good news and it is interpreting everything as good news. Whether it is interpreting it correctly, I am not too sure," said Justin Urquhart Stewart, director at Seven Investment Management.

He said that earnings results showed that banks were doing well, but a recovery in the global economy was still slow.

DOLLAR FIRM, OILS SLIP

The dollar and yen were firmer against other major currencies as caution set in before more corporate earnings. The euro was down 0.4 percent at $1.4090 and down 0.5 percent at 131.95 yen.