* Major German parties reach deal on grand coalition
* Euro at four-year high vs yen, near one-month high vs
* German DAX nears fresh record, European shares gain
* Markets wary over rising tension in East China Sea
By Richard Hubbard
LONDON, Nov 27 A deal to form a German coalition
government boosted the euro to a four-year high against the yen
on Wednesday and helped buoy world shares, already
well-supported by signs of more central bank liquidity.
The single currency peaked at around 138.54 yen,
its best level since October 2009, and came close to a one-month
high against the dollar of $1.3613.
The approach of Thursday's Thanksgiving holiday in the
United States and next week's European Central Bank policy
meeting and U.S. payrolls report kept a lid on the gains.
The long-awaited coalition agreement between German
Chancellor Angela Merkel's conservatives and the centre-left
Social Democrats (SPD) was sealed early Wednesday, paving the
way for a government to be sworn in by the end of the year.
Details of the new government's policies were scant but
included raising the minimum wage and increasing pensions, which
should help boost activity in Europe's largest economy.
"In the short run, it might help a little bit, but we are
are very moderate on the impact, and on top of that it's going
to be very gradual," said Philippe Gudin, chief European
economist at Barclays.
The deal must still be voted through by SPD members, but
ending the political stalemate has amplified the positive tone
in equity markets. That tone was set by expectations the
super-loose policies of the major central banks would continue
into next year.
The MSCI world equity index was up 0.1 percent on the day to
just over 400 points, close to a level it last
reached at the end of 2007.
Europe's main share markets all edged higher on the news of
Germany's grand coalition, helped by some solid earnings from
the likes of Belgian discount grocer Colruyt.
"Germany is getting a more domestically focused economy,"
said Gerhard Schwarz, the head of equity strategy at Baader
Bank. "It's not happening overnight, but this could be one
element of appeal for equity investors."
The pan-European FTSEurofirst 300 had risen 0.3 percent
by midday, taking its year-to-date gains to 14.4
percent and keeping it on track for its best year since 2009.
Wall Street was similarly poised for modest gains before
Thursday's holiday. All its main indexes are at record levels
after the Nasdaq composite closed above 4,000 on Tuesday for the
first time since 2000.
ECB READY TO ACT
Signs that the ECB 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 pickup..
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 meeting as coming too soon after the bank cut rates
earlier this month to a record low.
Debt markets showed little reaction to the developments.
German Bund futures slipped 6 ticks to 141.61 and the
10-year cash yield was virtually flat at 1.7 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 White House called the demand
"unnecessarily inflammatory", was worrying some investors.
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 by
0.4 percent to slip further from a six-month peak touched on
In commodities, Brent crude was capped above $111 a barrel
after oil industry group American Petroleum Institute (API)
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, which had caused a sharp fall in oil prices, will
not bring an immediate increase in crude supplies.