World stocks march on as Fed rate hike looms, dollar steady

[June 14, 2017]  LONDON (Reuters) - Stocks rose on Wednesday, but worries about stretched valuations and caution before a near-certain rate hike by the U.S. Federal Reserve kept their gains in check, while the dollar steadied against a basket of major currencies.

The widely expected quarter-point interest rate hike will take the Fed funds target rate above 1 percent for the first time since the immediate aftermath of the collapse of Lehman Brothers in 2008.

Market participants' focus will be on signals on the frequency of further hikes and how the Fed plans to unwind its huge Treasury bond stockpile over the years ahead.

The U.S. central bank is scheduled to release its decision at 1800 GMT on Wednesday with a news conference to follow from Chair Janet Yellen.

"With financial conditions remaining supportive ... and US financials breaking higher, the Fed may see little reason to moderate its rate hike projections when meeting today," strategists at Morgan Stanley said in a note to clients.

The U.S. bank expects the dollar to gain 2 percent against major currencies over the next few weeks.

On Wednesday, the dollar index barely budged as slightly firmer moves against the euro and yen were offset by losses against the commodity bloc of currencies, such as the Australian and Canadian dollars.

Worries about the pace of global growth and weakness in markets for the commodities they produce drove a 5-percent slide in the values of both Australia's <AUD=D4> and Canada's <CAD=D4> dollars between March and May.

Relatively upbeat economic data from China and a surge in expectations of higher Canadian interest rates have helped currencies of commodities-related economies.

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, June 13, 2017. REUTERS/Staff/Remote

Optimism about the global economy also underpinned European equities where the pan-European STOXX 600 was up 0.6 percent, led by industrials and financials. Stocks on Wall Streets hit a record high overnight.

However, worries about valuations, particularly in the tech sector which nosedived last week, are on the rise.

A record number of investors said equities are overvalued and three-quarters said internet stocks are expensive or in a bubble, a Bank of America Merrill Lynch fund manager poll showed on Tuesday

Strategists at Deutsche Bank warned that its European "complacency indicator", which measures valuations relative to market volatility, was at an 11-year high, and the bank expects economic momentum to fade in coming months.

The MSCI All-Country World index was up 0.1 percent and has remained stuck in a tight range this month.

Europe's benchmark bond yield held near seven-week lows ahead of the Fed decision.

In commodities, oil prices fell more than 1 percent, on the backfoot again on worries about US oversupply. Brent crude oil was down 45 cents a barrel at $48.27 while U.S. crude was 50 cents lower at $45.96.

(Reporting by Vikram Subhedar; Editing by Andrew Heavens)

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