World stocks hit one-year highs as Fed hike prospects fade

London (Sept 7)  World stocks hit their highest inmore than a year and the dollar fell against the yen onWednesday as expectations of a rise in Federal Reserve interestrates receded after weak U.S. economic data.

Wall Street looked set to open flat to slightly lower,according to index futures. Emerging market shares led the charge, touching theirstrongest levels since July 2015 as investors sought returnswith interest rates likely to stay low for a prolonged period.

European shares reversed early losses. The Stoxx 600 index edged up 0.1 percent towards eight-month highs hit onMonday, led by a rise of almost 1 percent in oil and gas shares .

Oil prices rose even though many market participantsremained doubtful producers would reach a deal to freeze output.

Banks , for whom rock-bottom interest rates promisetough times, initially fell before turning slightly positive.

Euro zone government bond yields fell as some investors betthe weak U.S. data, which followed weaker-than-expected jobsnumbers on Friday, would pressure the European Central Bank toease monetary policy further. The ECB meets on Thursday.

"With a September rate hike looking less likely to happen,the ECB might be more pressured to come up with a decision thisweek on further measures," said Benjamin Schroeder, senior ratesstrategist at ING.

In Asia, MSCI's main Asia-Pacific stock index, excludingJapan was up 0.2 percent, having earlier touchedits highest since July last year. This helped lift MSCI'sall-country world index to its highest sinceAugust 2015.

"When people think there's no immediate rate hike from theFed, then Asia and emerging markets are the place to go to, asinvestors seek yields," said Toru Nishihama, senior economist atDai-ichi Life Research.

Japan's Nikkei index , however, retreated 0.4 percentas a strong yen hurt exporters.

DOLLAR, OIL

The dollar was last down 0.4 percent at 101.56 yen ,having fallen as low as 101.18, its weakest since Aug. 16.

The dollar fell 1 percent against several major currencieson Tuesday after Institute for Supply Management data showingactivity in the U.S. service sector slowed to a 6-1/2-year lowin August and diminished the already slim prospects for a Fedrate hike this month. The dollar index , which measures the greenbackagainst a basket of major currencies was flat. The euro was down0.1 percent at $1.1242.

Sterling , which topped $1.34 for the first time inseven weeks on Tuesday after the ISM data, pulled back 0.5percent to $1.3376 after British manufacturing output fell 0.9percent in July, its biggest drop in a year.

The data was the first to cover output solely for the periodafter the June 23 vote to leave the European Union.

"Sterling has been lifted in recent weeks by very strongdata, but this output data shows it's been a pretty mixed bagfollowing the referendum," said Societe Generale currencystrategist Alvin Tan.

The Swedish crown rose around 0.2 percent to 9.52per euro after the Swedish central bank kept interest ratesunchanged as expected. Oil prices, which have been on a rollercoaster in recentdays as expectations of whether a deal to curb a global glut canbe reached have waxed and waned, edged up.

Brent crude , the international benchmark, gained 52cents to $47.78 a barrel. It rose as high as $49.40 on Monday,having fallen to $45.32 on Sept. 1.

The reduced expectations of a Fed hike also lifted othercommodities. Copper hit a two-week high at $4,688 atonne, while gold touched a 2 1/2-week peak above $1,352an ounce before pulling back.

Soiurce: Reuters