* World stocks hover near six-year highs
* Equities expected to rally further in 2014
* Rise in bond yields to be tempered by deflation fears
* Euro near 2-year high vs dollar, may weaken in 2014
By Marius Zaharia
LONDON, Dec 31 World stocks were ending 2013
close to six-year peaks on Tuesday and benchmark bond yields
were poised for their first annual rise since 2009 as investors
celebrated a pick-up in global growth with expectations of more
Thanks to ultra-easy monetary policies and an improving
economic outlook, equities have enjoyed a vintage year in 2013.
Wall Street was on track for its best year since 1997 with a 29
percent gain, while Japan's Nikkei ended up 56.7 percent
and European shares gained 16 percent.
MSCI's all-country world equity index was
flat at 407.42 points on Tuesday, having hit its highest since
late 2007 at 407.65 on Monday.
The FTSEurofirst 300 index of top European shares
was up 0.13 percent at 1,313.52 points, on course for its best
year since 2009.
Assets favoured by investors in economic downturns took a
beating in 2013, with top-rated U.S. and German bond yields
trading near the highest in around two years and gold
limping towards its worst annual performance in three decades.
With bets that the economic recovery will continue even as
the U.S. central bank steadily trims its bond-buying stimulus
and that the euro zone will take more steps towards overcoming
its debt crisis, investors look for more of the same in 2014.
"There is almost a complacency about next year and how well
it could go," said Hans Peterson, head of asset allocation at
SEB investment management. "There is still abundant liquidity
even if the Fed started to taper and I think that is still the
main theme ... Everything looks nice and easy right now."
Reuters polls show European stocks are expected to hit new
highs in 2014, while Chinese, U.S. and other major stock markets
are also seen posting solid gains.
Gold is expected to remain depressed, while benchmark bond
yields are seen rising only slightly, despite investors'
preference for riskier assets, the polls show.
Analysts do not foresee a sharp bond sell-off because
inflation in major economies is expected to remain stubbornly
low, while the European Central Bank and the Federal Reserve
have pledged to keep interest rates low for a prolonged period.
While staying overweight in equities, Didier Duret, chief
investment officer at ABN AMRO private banking, said 2014 "will
be a good opportunity to ... buy some good quality bonds as
yields pick up above 3 percent in the U.S. and above 2 percent
The yield on the U.S. 10-year Treasury note,
which sets the standard for global borrowing costs, has risen to
almost 3 percent from 1.75 percent at the start of the year, but
it is seen rising to only 3.35 percent in 2014.
Emerging markets have been a noted exception to the rally in
equities. MSCI's EM Index fell 5 percent in 2013 on
worries that cuts in global monetary stimulus could expose
economic imbalances and as funds return to the rich world.
The euro is set to end 2013 close to its highest level in
two years against the dollar, but a Reuters poll
shows it is expected to reverse its upward trend next year as
the continued soft stance of the ECB contrasts with the Fed's.
On Tuesday, the single currency was steady at $1.3790
to be up more than 4 percent for the year.
The easing of the euro zone crisis and signs of a pick-up in
economic activity even in the bloc's weakest members have
offered strong support to the euro and brought Italian and
Spanish debt yields to just over half their crisis peaks.
In recent days, a rise in money market rates due to thin
year-end liquidity has given the single currency extra impetus,
but there are some expectations the ECB may react with new
long-term liquidity injections into the banking system if that
continues in 2014.
"Diminishing euro zone market liquidity, a steeper yield
curve and a stronger euro will do little to resolve the ECB's
deflationary credit crunch dilemma," said Lena Komileva,
managing director at G+ Economics, in a note.
"It would be too soon to expect that the ECB will respond
with renewed liquidity easing at its January 2014 meeting, but
it is clear that conditions warrant close monitoring and
readiness for swift action."
The euro was quoted at 144.71 yen, down 0.3
percent from late U.S. trade, after having set a five-year high
of 145.67 yen last Friday.
The dollar was a tad lower at 105.10 yen, but
remained on track for its biggest annual gain in 34 years, with
the Japanese currency having been bowled over by the Bank of
In the oil market, Brent crude was a tad higher at
$111.24 a barrel on Tuesday. U.S. oil futures were down
14 cents at $99.15.
Hopes for global growth meant copper traded around
four-month highs, while aluminium dipped after climbing
to two-month highs last session.