Kuwait Times

Published Date: July 04, 2007

LONDON: Global equities forged ahead yesterday, closing in on an all-time high, as investors put recent worries about higher borrowing costs behind them to focus on signs of robust economic growth and continuing merger activity. Wall Street looked for a higher start after rallying on Monday.

MSCI's main world equity index was a little more than a quarter of a percent off its all time high, all but wiping out the June losses caused by anxiety over rising bond yields and troubles in the US subprime market. Bond yields, though up yesterday, have fallen back generally from peaks in June.

On currency markets, the euro hit an all-time high against the yen and the British pound soared to a 26-year high against the dollar above $2.01. Stock markets were being driven by signs of US economic growth after the Institute for Supply Management's factory index rose to its highest level in more than a year and Wall Street rallied.

"I think that people were amazed to see how the ISM figures were better than expected," said Ralf Groenemeyer, strategist at Commerzbank.

Sentiment was also being boosted by mergers and acquisition (M&A) news. For example, Canada's largest telephone company, BCE Inc, agreed to a $32.6 billion buyout. M&A has been a major driver of world stocks this year. European shares jumped. The pan-European FTSEurofirst 300 index rose 0.8 percent. London's FTSE 100 index gained 0.7 percent, while Frankfurt's DAX added 1.2 percent and the Paris CAC 40 0.8 percent.

Earlier, Japan's Nikkei closed only a little higher at 18,149.90. The broader TOPIX index rose 0.08 percent to 1,781.86. Gains elsewhere in Asia were stronger. MSCI's broadest index of non-Japan shares in Asia was at an all-time high, up 1.28 percent on the day.

Bullish sentiment on stock markets did little to ease concerns about the weakness of the dollar. It was recovering somewhat from an overnight battering but still near an all-time low against the euro at $1.3601 and near the 26-year low versus sterling at $2.0150. The euro, meanwhile, scaled a record high against the yen with the low-yielding Japanese currency hurting as mixed economic data in the past week has reinforced expectations for the Bank of Japan to increase interest rates only gradually.

The euro rose to 167.19 yen according to Reuters data, the highest since the common European currency was launched in 1999 and up 0.2 percent on the day. It slipped back to around 166.58 yen.

Euro zone government bonds fell after 10-year debt yields briefly dipped below the psychologically key 4.5 percent level. The interest rate-sensitive two-year Schatz yield was up 5.7 basis points at 4.416 percent. The 10-year Bund yield was up 3.7 basis points at 4.519 percent, well below the five-year highs of 4.703 percent struck on June 13. "We have given back gains as people reckon that they need to see more distress in credit markets or more soft euro zone data to justify yields going below 4.5 percent," said a trader in London. - Reuters