* World share index hits record high, Japan stocks at
* Gold near two-month peak after vicious short-covering
* U.S. bond yields up as Fed seen comfortable with rising
By Patrick Graham
LONDON, June 20 Global stocks traded just off
record highs on Friday, still largely undeterred by a second
week of violence in Iraq that has sent oil prices to nine-month
Buoyed by the billions of dollars the U.S. Federal Reserve
is still pumping into the global economy under its quantitative
easing programme, equity markets took heart from a sanguine
message this week on inflation from Fed chief Janet Yellen.
That effect was still dominant on Friday, with all of
Europe's major exchanges inching up in early trade, although the
headline MSCI index of world shares dipped 0.2
percent from record highs hit on Thursday.
"The goldilocks scenario of low rates and a slowly improving
economy continues, with markets unmoved by continued
geopolitical concerns," said Michael Hewson, chief market
analyst at CMC Markets in London.
"Against that backdrop stocks look likely to remain
underpinned, though trading today is likely to be cautious as we
head into the weekend, given what could unfold ... in Iraq."
Iraqi government forces battled Sunni militants on Thursday
for control of the biggest oil refinery in the country, OPEC's
second-largest producer. If the 300,000 barrels per day refinery
stays closed, Baghdad will need to import more oil products to
meet domestic consumption, further tightening oil markets.
Oil prices rose further in response and they were within
touching distance of nine-month highs on Friday at $114.96.
The other big beneficiary of events in Iraq has been gold,
which sold off heavily earlier this year but is now close to
two-month highs. It saw its biggest one-day rise in nine months
on Thursday on the back of expectations, encouraged by the tone
of Yellen's comments, that monetary policy will stay loose in
the United States, Europe and Japan for a long time yet.
If the Fed and other central banks prove more willing in
future to tolerate higher inflation in aid of faster economic
growth then gold is a good way of hedging any impact on the
value of the dollar and other currencies.
"Gold's move this week has been fuelled by a rebasing of
expectations after the FOMC meeting, geopolitical risks,
positioning and more favourable technicals," said Edel Tully, a
strategist at UBS.
"We're not convinced that the rally has further longevity
... the move has a lot more to do with positioning, not just
with shorts being elevated, but gross longs are also quite
Spot gold traded $1,309.30 an ounce having been as far as
$1,321.70 at one stage on Thursday.
Japan's Nikkei ended steady after touching a fresh
five-month peak, while the broader TOPIX brought its
gains to more than 10 percent in just the past four weeks.
"The good mood is still lingering," said Kyoya Okazawa, head
of global equities at BNP Paribas. "Not just foreign investors
but also long-term domestic investors like pension funds have
been buying as well."
MSCI's broadest index of Asia-Pacific shares outside Japan
ran out of steam, easing 0.4 percent on losses
in South Korea and China.
On currency markets, the main fallout of Wednesday's Fed
meeting has been disappointment for the dollar. Some investors
had been hoping for an aggressive message on the prospect of
higher interest rates that would support the U.S. currency.
In contrast, expectations the Bank of England will move at
latest by early next year drove the yield gap between two-year
British gilts and U.S. Treasuries higher
and helped the pound trade near 5-1/2 year highs.
The Norwegian crown, subject to a wipeout on Thursday after
a U-turn by the central bank there on policy, was down another
0.4 percent on Friday.
(Additional reporting by Francesco Canepa, Anirban Nag and
Clara Denina; Editing by Catherine Evans)