LONDON (Reuters) - Strong German data lifted European shares to near three-week highs on Tuesday and the dollar hit an 11-month peak, as markets anticipated further evidence of a U.S. economic recovery that should spur the Federal Reserve to hold off from fresh stimulus.
U.S. stock markets were poised to open higher and the brighter economic picture also lifted oil prices while sending safe-haven government bonds lower.
German think tank ZEW's monthly index of analyst and investor sentiment showed a much higher than expected rise in the outlook for the economy, though a separate gauge of current conditions was weaker.
The data added to signs that Europe's biggest economy will avoid being dragged into recession by other debt-laden euro zone nations but not shake off the effects of the crisis entirely.
"We think Germany should remain the best in class for this year in terms of growth, but we still see a sizeable deceleration from last year," said Thomas Costerg, European economist at Standard Chartered Bank.
The broad FTSE Eurofirst 300 index of top European shares <.fteu3> was up 1.1 percent to 1,089.18 points, led by banks <.sx7p> and commodity stocks <.sxpp> after the ZEW data. That marked a gain of over 21 percent since the low hit in late November last year when the euro zone debt crisis was at its height.
February numbers for U.S. retail sales, which rose in January after a sluggish December, are due out later and are expected to add the upbeat view on global growth with a second straight month of gains.
The Federal Reserve also reveals the outcome of its policy-setting meeting later on Tuesday.
Coming on the heels of Friday's strong nonfarm payrolls numbers, the retail sales number should add weight to the view the U.S. recovery is strengthening.
Robust data from the two economic powerhouses on either side of the Atlantic should serve to ease worries about the recovery's sustainability.
That should support riskier assets like stocks and commodities as well as growth-linked currencies like the Australian dollar, at least for the time being.
"Liquidity has helped to improve sentiment in the near term, but I think there are a number of longer term concerns in the market place, and that is all to do with growth," Joshua Raymond, market strategist at City Index said.
For a graphic comparing German ZEW, equities and GDP:
http://link.reuters.com/cag54s
For a graphic showing components of U.S. GDP:
http://link.reuters.com/fan36s
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DOLLAR FIRMS AHEAD OF FED
The U.S. dollar rose to an 11-month high versus the yen as the growth signals reduce the likelihood of additional U.S. monetary stimulus measures from the Fed.
Central banks, led by the Fed and the European Central Bank, have opened the monetary taps over the past three months to ease the crisis in Europe and support the global economy, which has led to a surge in prices of riskier assets.
The MSCI world equity index <.miwd00000pus>, is up by over 10 percent for the year to date while emerging market equities have gained over 15 percent <.mscief/>
The ECB indicated last week it had done all it could for now and investors are now awaiting the Fed's statement after today's meeting to find out its attitude toward any further easing measures when the current operation expires in June.
Earlier on Tuesday the Bank of Japan left policy unchanged.
"We took note of the opening of these monetary valves and at the beginning of the year raised rates of exposure in most of our funds to levels close to their maximum," Didier Saint-Georges, a member of the investment committee at French asset manager Carmignac Gestion said.
"But we are taking great care not to lose sight of changes in the risk environment and economic realities, two further parameters that the abundance of liquidity can offset only in the short term."
The expectation of a solid U.S. revival lifted the dollar against a basket of currencies <.dxy> to a seven-week high of 80.132 on Monday and it is currently hovering near this peak ahead of the outcome of the Fed meeting.
The euro meanwhile was little changed at $1.3120, not far from a one-month low of $1.3079 as worries over Portuguese and Spanish sovereign debt kept investors on edge despite the recent successful Greek debt restructuring.
Signs of an improved outlook in for the world economy lifted oil prices with Brent crude rebounding. Brent rose 53 cents to $126.01 a barrel after prices had eased on Monday for the first time in four sessions.
Gold slipped to $1,695.46 an ounce although trading was cautious with investors preferring to wait for the outcome of the Fed meeting, expected around 1815 GMT.
Easing expectations for the Fed to signal the need for more measures to keep interest rates low could eventually weigh on gold, which has risen around 9 percent so far this year on a near-zero U.S. rate outlook.
(Additional reporting by Anirban Nag; Editing by John Stonestreet)
Source: http://news.yahoo.com/asian-shares-rise-ahead-fed-boj-034820554.html
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