January 31, 2018 / 10:04 AM / 2 months ago

GLOBAL MARKETS-Stocks eye second best start to a year on record

* MSCI steadies after selloff, heading for top 3 start to the year

* Trump’s State of Union lifts U.S. stock futures slightly

* Broader equities capped by recent rapid rise in yields

* Dollar woes continue ahead of Fed, at 2-1/2 yr low vs yuan

* European shares seen 0.1-0.2 pct higher

By Marc Jones

LONDON, Jan 31 (Reuters) - World stocks pulled out of a two-day dive and were eyeing their second best start to a year ever on Wednesday, while the dollar came under renewed pressure ahead of the Federal Reserve’s first meeting of the year.

A controversy-free State of the Union address from U.S. President Donald Trump had helped Asian bourses steady as bond markets also turned calm after another round of selling had left U.S. Treasury yields at 4-year highs.

Europe’s pan-regional STOXX 600 then followed with a 0.3 percent rise to bolster modest gains for MSCI’s 47-country ACWI index as it headed for a 5.6 percent jump for January.

That puts it neck-and-neck with 2012’s fast start after which only 1994’s 6.5 percent leap would be better.

“We can interpret the remarkable January performance as a spill over from 2017 - growth gathering pace, low inflation and low volatility, and that has accelerated the momentum,” said ABN Amro’s Chief Investment Officer Didier Duret.

“For me this is a prelude to the year where the equity market trend is not broken... there will be phases of people coming into the market and then correction phases as volatility spike.”

A market gauge of that volatility - the VIX - perked up to its highest levels since August 2017 and has nearly doubled this month.

One of the big boosts for stock markets though, especially in emerging markets which have seen some of the biggest gains, has been the ongoing weakness of the dollar.

It fell by a quarter of a percent again on Wednesday against a basket of other top currencies to put it on track for its biggest monthly drop at 3.5 percent in nearly two years.

The day’s most eyecatching move was a 2-1/2 year low against China’s yuan of 6.3287. It has been the greenback’s heaviest monthly drop against the Chinese currency since 1994 having lost more that 3 percent.

Other action had seen the yen briefly slip after the Bank of Japan increased its buying of medium-term Japanese government bonds (JGBs) in a move seen as a warning shot against further rises in its bond yields and currency.

The dollar later pared its gains and was last trading at 108.68 yen.

Against the euro and pound though it backed up all the way to $1.2445 and $1.4165 respectively.

In the opening weeks of 2018, Europe recorded the highest equity inflows across all major regions, added to a strong 2017 which saw the region cornering over one-third of all global equity fund flows.

All eyes will be on the outcome of the Federal Reserve’s first meeting of the year later which will also be Janet Yellen’s last in charge.

Rates markets are currently pricing in a little over 80 percent chance of another Fed rate hike in March and between two and three for the year as a whole.

“In light of the steady stream of favourable data, it is possible that the FOMC’s (Fed’s) statement upgrades language on activity somewhat, which could be viewed as a marginally hawkish shift,” analysts at BNP Paribas said in a note.

Reporting by Marc Jones; Editing by Raissa Kasolowsky

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