* Dollar hits six-week low on recent weak U.S. data
* World stocks hit 3-1/2 week high, positive Chinese loan
* Italian bond yields hit 8-year low, new govt seen
* U.S. markets shut for holiday
By Carolyn Cohn
LONDON, Feb 17 The dollar hit 6-week lows on
Monday as recent weak U.S. data cast doubt on the pace of
monetary tightening, while prospects for a new reforming
government in Italy and better euro zone growth boosted the
World stocks rose to 3-1/2 week highs,
helped by encouraging news on Chinese lending, but volumes were
thin due to a U.S. market holiday.
A run of weak U.S. data, including an unexpected fall in
January manufacturing output on Friday, has caused some
investors to revise their expectations of how fast the Federal
Reserve will scale back stimulus and tighten monetary policy.
"There's been a very patchy data outlook for the past six
weeks to two months and expectations of a rate rise from the Fed
have been curtailed," said Peter Kinsella, strategist with
Commerzbank in London.
Higher-yielding emerging markets, which have
suffered as U.S. investors bring their money home in
anticipation of tapering, also rose to 3-1/2 week highs.
Data at the weekend showed Chinese banks disbursed the
highest volume of loans in any month in four years in January, a
surge that suggests the world's second-biggest economy may not
be cooling as much as some fear.
The dollar hit a six-week low against a basket of
currencies and three-week lows against the euro following
recent upbeat euro zone economic readings. It edged off those
lows by 1500 GMT, to 80.149 and $1.3704 per euro.
It rose against the yen after data showed Japan's
economy grew just 0.3 percent in the fourth quarter, confounding
forecasts of a 0.7 percent gain.
In Europe, the mood was upbeat after Italian President
Giorgio Napolitano asked centre-left leader Matteo Renzi to form
a new government after former Prime Minister Enrico Letta
resigned last week.
Renzi has promised a radical programme of action to lift
Italy out of its most serious economic slump since World War
Two, but will have to deal with the same unwieldy coalition
which failed to pass major reforms under its previous leader.
Ratings agency Moody's lifted Italy's ratings outlook to
stable from negative late on Friday, reinforcing optimism that a
new government will be able to push through the reforms.
"Investors are quite sanguine about the economic and
political situation in peripheral Europe, and that's a very
positive signal," said David Thebault, head of quantitative
sales trading at Global Equities. "Ten-year bond yields continue
to fall across the board, a sign of stability which has prompted
a lot of investors to come back."
The yield on Italy's benchmark 10-year government bond hit
an eight-year low of 3.622 percent, and Spanish yields
were also trading at eight-year lows.
Euro zone finance ministers meet in Brussels on Monday.
European stocks also reached 3-1/2 week highs, and
Italy's FTSE MIB equity index, which outperformed with
a 1.6 percent gain on Friday, gained 0.3 percent.
Safe-haven Bund futures fell 4 ticks.
The lower dollar spurred gold to a fresh three-month peak at
$1,329.55 before it trimmed gains to $1,327.50.
In energy markets, Brent oil futures dipped 1 cent
to $109.05 a barrel, while U.S. crude firmed 48 cents to
Supply disruptions and a severe winter across North America
that has boosted heating demand were also supporting oil.