* Central banks expected to extend easy policies
* European shares 1.25 pct higher, banks lead
* Gold snaps four day losing streak
* Oil, copper gain as China pledges to maintain growth
By Richard Hubbard
London, March 5 European shares jumped, oil rose and gold snapped a four-day losing streak on Tuesday as investors bet major central banks would keep monetary policy easy at meetings this week.
Shares on Wall Street may even set a new record as stock futures pointed to a strong start with the benchmark Dow index just 40 points short of its all time closing high.
Despite signs of patchy growth in the world economy, demand for riskier assets has been fuelled by unprecedented levels of liquidity injections by the world's major central banks, and investors are seizing on any signs this will continue.
"Central banks are protecting the downside for now but the question is for how long," said Lex van Dam, hedge fund manager at Hampstead Capital.
Comments from U.S. Federal Reserve's vice chair Janet Yellen on Monday backing the current aggressive stimulus effort, and a decision by Australia's Reserve Bank to keep interest rates at record lows were the latest signs policies will remain in place.
The Bank of Japan, the Bank of England and the European Central bank are all expected to either keep current loose policies in place or add extra stimulus after their policy meetings this week.
Investors have also taken heart from signs that the inconclusive Italian election result, weaker data from China and Europe, and the dramatic government spending cuts in Washington have not sparked any major sell off.
"Despite spending cuts in the U.S., a lack of any kind of political resolution in Italy and weaker data in Asia, we just can't get a proper 'risk-off' mood going ... as mad money (quantitative easing and zero interest rate policy) trumps every other concern," said Kit Juckes, strategist at Societe Generale in a note to clients.
European shares bolted higher from the start of trading on Tuesday with the broad FTSEurofirst 300 index rising by 1.2 percent at midday to be around 1,182.75 points, a fresh two-year high.
London's FTSE 100 gained 0.7 percent, close to a five year high, while and Frankfurt's DAX gained over 1.6 percent putting it on track for its second best day of 2013.
Investors in Europe also got some good news on the economic front when a gauge of euro zone business activity for February showed a better-than-expected result though the purchasing managers' index (PMI) still pointed to a region-wide recession.
The data also provided further evidence of growing economic disparities within the 17-nation currency bloc.
"The outlook ... seems to largely depend on whether Germany can continue to expand and offset the weakness in France, Italy and Spain," said Chris Williamson, chief economist at survey compiler Markit.
The euro initially climbed on the PMI data but shed the gains to be up just 0.1 percent at $1.3035 as the focus switched back to prospects the ECB will cut interest rates at its policy meeting on Thursday.
"The (PMI) data did not have a lasting effect on the euro, because what counts in the end is what the ECB makes of these numbers as it determines their growth outlook and how likely a rate cut will be," said Ulrich Leuchtmann, head of FX research at Commerzbank.
The dollar fell 0.1 percent against a broad range of major currencies following the comment's from the Federal Reserve's influential vice chair Janet Yellen who is widely tipped to succeed current Fed chairman Ben Bernanke.
The weaker dollar and prospects of more money printing by central banks gave broad support to the commodity markets which were also helped by a promise from China's government to deliver economic growth of 7.5 percent this year.
Gold rose nearly half a percent to $1,581.84 an ounce after four straight sessions of falls.
Three-month copper on the London Metal Exchange rose to $7,774.25 a tonne.
Copper demand from China, which accounts for 40 percent of global consumption, slowed last month ahead of the week-long Lunar New Year holiday, but expectations of a rebound have gathered pace ahead of the seasonally stronger second quarter.
Brent crude oil rose towards $111 per barrel, ending a five-day losing streak while U.S. crude added 31 cents to $90.43.