* World share index rises to record, Japan stocks at 5-month high
* Gold near two-month high after short-covering rally
* U.S. bond yields up as Fed seen comfortable with rising inflation
By Patrick Graham
LONDON, June 20 (Reuters) - Oil traded at close to nine-month highs on Friday, on course for a second week of gains, as violence in Iraq raised worries over supplies. Stock markets remained upbeat.
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. All of Europe’s major exchanges inched up, although the MSCI index of world shares dipped 0.2 percent from record highs it reached on Thursday.
Brent oil prices slipped 0.1 percent to $114.90 from a high of $115.71 touched on Thursday.
“The events unfolding in Iraq will continue to dictate the direction on the market and support the oil price for the time being at a high level,” said Barbara Lambrecht, an analyst at Commerzbank in Frankfurt.
Rising oil prices may mean improved profits for major oil companies but could impose rising costs and higher inflation on the global economy.
Speculation the Fed will look past any rise in inflation as long as growth is improving pushed stocks higher, and European markets up another 0.1-0.3 percent on Friday.
“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.”
If inflation does accelerate, then holding gold is a good way to hedge against declines in the value of currencies, and bullion has been another big beneficiary of events in Iraq. It saw its biggest one-day rise in nine months on Thursday before retreating a touch on Friday.
“Gold’s move this week has been fuelled by a rebasing of expectations after the Fed 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 light.”
Spot gold traded at $1,309.30 an ounce, after rising as high as $1,321.70 on Thursday.
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 by early next year at latest 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 slid on Thursday after a U-turn in policy by the central bank and dipped another 0.3 percent on Friday. (Additional reporting by Francesco Canepa, Alex Lawler and Clara Denina; Editing by Larry King)