* World share index hits record high, Japan stocks at
* Gold off highs after vicious short-covering rally
* US bond yields up as Fed seen comfortable with rising
By Wayne Cole
SYDNEY, June 20 An index of global stocks was
near record highs on Friday while gold celebrated its biggest
one-day rise in nine months as markets wagered monetary policy
would stay super loose in the United States, Europe and Japan
for a long time to come.
Investors had piled into bullion while selling U.S.
government debt on the premise the Fed might be comfortable with
higher inflation if it meant faster economic growth.
Spot gold was enjoying the view at $1,312.24 an ounce
having been as far as $1,321.70 at one stage on Thursday when it
climbed 3.3 percent.
Traders also said a major hedge fund had cut back a large
short position in the precious metal which pushed prices above
$1,300 an ounce and tripped a host of stop-loss buy orders.
Equities were in ebullient mood with MSCI's all-country
world index, which includes about 85 percent of
global investable equities, passing its previous all-time high
set in November 2007.
Japan's Nikkei firmed 0.3 percent to a fresh
five-month peak, while the broader TOPIX brought its
gains to more than 10 percent in just the past four weeks.
MSCI's broadest index of Asia-Pacific shares outside Japan
eased 0.2 percent after rising 0.7 percent on
Thursday. In Europe, the FTSEurofirst 300 index of
regional shares had risen 0.6 percent to a six-year top.
Wall Street was more circumspect, though data on jobless
claims and regional U.S. manufacturing continued to show
improvement. The Dow had ended up 0.09 percent,
while the S&P 500 gained 0.13 percent and the Nasdaq
lost 0.08 percent.
The revival in risk appetite follows Wednesday's decision by
the U.S. Federal Reserve to recommit to keeping rates near zero
for some time to come.
Crucially, Chair Janet Yellen sounded unconcerned by
inflation despite a recent pick-up in price pressure, surprising
many who had thought the central bank would take a more hawkish
TAKING INFLATION PROTECTION
"The dismissal of the recent up-shift in inflation readings
as 'noise' was the biggest revelation," said William O'Donnell,
head of U.S. government bond strategy at RBS.
"The Fed leadership is so unsure about the sustainability of
the recovery that they are willing to wait for economic growth
numbers and labour market indicators to beat them over the head
before they consider removing emergency stimulus."
As a result the market has pushed out the day when the Fed
might hike its funds rate, while also taking insurance against
higher future inflation by buying gold and selling longer-dated
Futures contracts that aim to map the course of the Fed
funds rate <0#FF:> again suggest no lift in rates until at least
mid-2015. The June contract for next year now implies a rate of
31.5 basis points compared to 37.5 on Wednesday. Currently the
funds rate is around 9 basis points.
Investors are also demanding higher returns on long-term
U.S. debt to compensate for the risk of higher inflation, so
steepening the yield cure.
Yields on 30-year bonds have swung up to 3.46 percent
, from a low of 3.35 percent early in the week, while
rates on 10-year paper reached 2.62 percent.
In currencies, the Norwegian crown stole the limelight by
plunging over 2 percent on Thursday after the country's central
bank hinted at the possibility of a cut in interest rates,
stunning markets that had wagered the next move would be up.
The dollar surged to 6.1178 crowns in its biggest
one-day gain in more than a year, while yields on short-term
Norwegian debt tumbled 20 basis points.
Moves elsewhere were pedestrian in comparison, with the
dollar soggy on the yen at 101.88 while the euro edged up
on the dollar to $1.3617.
The dollar also lost ground against a basket of major
currencies, while the British pound reached heights not
seen since late 2008 above $1.7000.
Brent was off 20 cents at $114.86 a barrel, but that
came after hitting a nine-month high above $115 on concerns
heavy fighting in Iraq could limit oil supply from OPEC's
The U.S. crude oil futures contract for July added 18
cents to $106.61 a barrel.
(Editing by Eric Meijer & Shri Navaratnam)