* 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
anticipated a further pick-up in global growth.
Ultra-easy monetary policies and an improving economic
outlook have given equities 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 up
0.14 percent at 407.57 on Tuesday, having hit its highest since
late 2007 at 407.65 on Monday.
The FTSEurofirst 300 index of top European shares
was up 0.25 percent at 1,315.09 points, on course for its best
year since 2009. U.S. stocks futures were flat to
Assets favoured by investors in economic downturns took a
beating in 2013, with falling prices driving top-rated U.S. and
German bond yields near their highest levels in around two years
and gold limping towards its worst annual performance in
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 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 United States and above 2
percent in Germany."
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.
Russian stocks hit eight-day lows after two deadly
attacks in less than 24 hours that raised security fears ahead
of the Winter Olympics.
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 inched down to $1.3776,
still 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 states 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 shared 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.
"One of the themes for 2014 is likely to be dangerously low
inflation," said Marshall Gittler, head of global FX strategy at
IronFX Global. "That's got to be a worry for the ECB and why
they are likely to take more measures to loosen policy in 2014.
That's the direct opposite of what the Fed is doing, which is
why I expect the euro to weaken against the dollar."
The euro was quoted at 144.61 yen, down slightly
on the day, having set a five-year high of 145.67 yen last
Friday. The dollar was a tad lower at 104.96 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 held above $111 per
barrel on Tuesday supported by slashed Libyan output and
violence in South Sudan. U.S. oil futures were down 35
cents at $98.94.
Hopes for global growth meant copper traded around
four-month highs, while aluminium dipped after climbing
to two-month highs last session. Zinc looked set on Tuesday to
be this year's best-performing industrial metal.