Global stocks rise as weak dollar, U.S. rate outlook keep oil strong

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[February 04, 2016]  By Nigel Stephenson and Marius Zaharia

LONDON (Reuters) - Stocks advanced in Europe and Asia on Thursday, with the focus on energy companies as speculation U.S. interest rates may not rise at all this year left the dollar nursing hefty losses and oil held most of the previous day's big gains.

U.S. stock futures pointed to a higher open on the Wall Street as well.

The dollar fell sharply on Wednesday after weak U.S. data and comments from a Fed policymaker interpreted as signaling further rate hikes could be delayed.

The U.S. currency fell 0.7 percent against a basket of its peers <.DXY> on Thursday and was on track for its deepest weekly fall since mid 2009. It hit a 3-1/2 month low against the euro and held close to its weakest for a week against the Japanese yen <JPY=>.

"The dollar is on its knees," said Richard Benson, head of portfolio management with currency fund Millennium in London. "Probably we will now have some stability ahead of U.S. payrolls tomorrow."

Dollar weakness, and unconfirmed talk that oil-producing countries in and outside the OPEC group may meet soon to discuss output cuts, helped crude prices add to Wednesday's sharp gains.

Brent, the global benchmark, was up 35 cents at $35.39 a barrel, having fallen as low as $27.10 in mid-January.

Commodity-related shares pushed higher in Europe. The pan-European FTSEurofirst 300 index  rose 0.6 percent while the STOXX Europe 600 Basic Resources Index gained 4.9 percent and oil and gas index 3.2 percent.

Shares in Anglo American, Glencore, BHP Billiton  and BP rose 3.5 to 11 percent.

Britain's miner-heavy FTSE 100 index rose 1.4 percent. On the debit side, Swiss bank Credit Suisse slid 10 percent after posting its first full-year loss since 2008.

"Now we see that the U.S. dollar has broken down quite significantly and based on the cross-asset correlation, that certainly helps commodity prices and stocks," said Gerhard Schwarz, head of equity strategy at Baader Bank in Munich.

MSCI's broadest index of Asia-Pacific shares outside Japan  jumped 2.3 percent. Australia's resource-rich index rose 2.2 percent.

Tokyo's Nikkei  fell 0.9 percent, pressured by a stronger yen, which harms exporters, and by weak earnings forecasts from leading companies.

Chinese shares gained, with the CSI300 index closing 1.2 percent higher as the weaker dollar eased concerns of a sharp near-term depreciation in the yuan currency.

Stocks globally have had a rough start to 2016, hurt by tepid U.S. growth, falling oil prices, and concern the world faces a China-led slowdown.

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But another potential worry -- that the U.S. Federal Reserve would keep raising interest rates throughout 2016 -- has receded somewhat.

Fed policymaker William Dudley told Market News International in an interview published on Wednesday that monetary conditions had tightened since the Fed raised rates on Dec. 3. and that rate-setters would have to take this into account.

Investors interpreted this as meaning future rate rises might be delayed. The federal fund futures market indicates traders no longer expect a Fed hike this year.

Sterling  retreated from a one-month high against the dollar after the minutes from the Bank of England's latest policy meeting showed the lone policymaker voting for a rate hike dropped his call. In its Quarterly Inflation Report released simultaneously, the BoE cut its economic growth forecasts.

The euro was up 0.6 percent at $1.1170, having firmed by about 2 percent on Wednesday.

LOW-RISK

Stock market strength lessened the appeal of low-risk, low-reward government debt. Yields on German 10-year Bunds, the euro zone benchmark for borrowing costs, rose 4 basis points to 0.32 percent.

Ten-year U.S. Treasury yields edged up 2 basis point to 1.90 percent.

"The pressure from oil is easing...and tranquillity is returning to other markets so we can expect a bit of a step back from bonds, and yields should trend higher," KBC strategist Piet Lammens said.

The revised U.S. rate outlook lifted gold, which hit a three-month high at $1,147.40 an ounce.

(Additional reporting by Wayne Cole in Sydney, Patrick Graham and John Geddie in London; Editing by John Stonestreet and Raissa Kasolowsky)

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