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Shares, euro lifted by ECB hopes

Tuesday, August 07 14:35:52

World shares held near three-month highs and the euro clung to gains above $1.24 today after investors drew encouragement from signs that Europe is edging towards resolving its debt crisis even as the economic impact worsens.

Global markets have enjoyed a strong run this week after the European Central Bank promised to buy bonds to ease the pressure on Spain and Italy, albeit under strict conditions that have yet to be fully worked out.

U.S. stocks were poised to open higher [.N}, while gold inched up towards $1,615 an ounce and Brent crude futures shot past $110 a barrel partly due to worries about supply.

However, a sharp drop in shares of Standard Chartered Plc after New York's bank regulator threatened to tear up its state banking licence helped to hold back gains in European stocks.

"Hopes of action in Europe are certainly still persistent," said Keith Bowman, equity analyst at Hargreaves Lansdown. "There is still an element of relief coming through from the U.S. employment figures," he added, referring to Friday's better-than-expected jobs data.

The cautious hopes that Europe's three-year crisis was edging towards a solution lifted the MSCI world equity index 0.2 percent to 321.14 points, near its highs of May this year. Share markets have enjoyed renewed demand from investors over the past three months as high-rated government bond returns have fallen sharply due to demand from investors seeking safety from the troubles in Europe, increasing the relative attractiveness of blue-chip stocks.

"Both growth and income investors are now hunting down the 4 percent dividend yields you can get on many global blue chips," said Tom Elliott, global strategist at JP Morgan Asset Management. European shares had a choppier day after it emerged that the powerhouse German economy had taken a bigger hit than expected in June due to weakness across the euro zone. German industrial orders fell 1.7 percent on the month, after contracts from the euro zone fell by 4.9 percent.

Data also showed Italy's recession extending into a fourth consecutive quarter as GDP fell 2.5 percent year-on-year in the three months to the end of June. "We believe Italy faces another two quarters of negative GDP growth this year," said BNP Paribas economist Catherine Colebrook. "There is little sign as yet of light at the end of the tunnel."

The FTSEurofirst 300 index of top European companies managed a slight gain of 0.2 percent to 1,088.16 points by midday in Europe, while the Euro STOXX 50, the index of blue chip euro zone stocks, was up 1.1 percent. (C ) Reuters