Asia stocks rose on Thursday, racking up a 68 percent gain for the year, as a jump in U.S. consumer confidence reinforced views that the world's largest economy is gradually recovering.
The dollar slipped from near 16-week highs against the yen, while oil looked set to post its strongest year in a decade as markets snapped back from one of the worst financial crises in generations.
Major European share markets were set to open slightly higher, according to financial spreadbetters, while U.S. equity futures were flat.
Equities and commodities are expected to build on this year's gains in 2010 unless the global recovery fizzles out, but market watchers are uncertain whether the dollar's rebound this month is temporary or the start of a longer-term upturn.
The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> rose 1 percent in thin trade, taking its gains for the year to near 70 percent. That marks its best performance since 1993 and far outpaces expected gains of just over 20 percent in U.S. and European equities.
Markets in Japan and South Korea were already closed ahead of the New Year's holiday and many others held abbreviated sessions.
Equity investors were encouraged by data showing U.S. consumer confidence rose to a three-month high in December, and by a Chicago business barometer, which hit a four-year high.
A decisive rebound in U.S. consumer demand will be vital for a sustained global recovery next year.
The encouraging reports spurred the Dow Jones industrial index <.DJI> to a slight gain on Wednesday, setting the U.S. blue chip index up for its first annual gain in two years. <.N>
Shares in Asia have bounced sharply from March lows, reflecting renewed risk appetite from investors as the global downturn began to ebb early in the year.
Asian stock markets are set for continued but more modest gains in 2010, said Sebastien Barbe, Asia economist at Calyon in Hong Kong.
The rally in Asian equities will continue because there is still a lot of cash in the global economy. Asia is perceived as the place where economic growth will be strong in the next five year and it does not have the problem of government or household debt that the West has, said Barbe.
Markets in Asia and elsewhere next year will be influenced by the pace of economic recovery, the expected timing of U.S. interest rate hikes and policymakers' strategies for unwinding emergency stimulus plans introduced during the global financial crisis, analysts say.
Calyon does not expect the U.S. Federal Reserve to increase rates until 2011, arguing that while U.S. economic data is improving it is still weak.
If we are wrong, and markets price in an earlier than expected U.S. rate increase, that will have an impact on equity markets, including in Asia, said Barbe.
OIL WITHIN SIGHT OF $80
As markets in London opened, the dollar slipped against the yen and the euro. It had hit a 16-week high against the Japanese currency at around 92.77 in New York trade.
The euro jumped 0.3 percent to $1.4434, while the yen rallied to 91.89 per dollar by mid-afternoon in Asia, Reuters data showed.
The dollar had gained against the Japanese currency earlier this month but looks set to end a volatile year with a modest loss for 2009 against a basket of major currencies <.DXY>.
Resource stocks gained as oil prices rose for a seventh straight day, trading 0.5 percent higher at just shy of $80 a barrel. Copper prices, which have more than doubled this year, hit 16-month highs.
Oil prices rose on the back of a drawdown in U.S. oil inventories and unseasonally cold weather across the northeastern United States.
Oil is now poised to post its strongest year in a decade, having rallied nearly 80 percent since the start of 2009.
Signs that the U.S. economic recovery may be on more solid footing have dented gold's appeal as a hedge against further weakening of the dollar, although spot gold picked up on Thursday, rebounding to $1,099.85 an ounce from $1,092.55 at the New York close.
Dollar weakness for much of the year pushed gold to a record high in December and its ninth annual rise in as many years. It looked set to end 2009 with a gain of around 25 percent.
However, the near-term outlook for the metal is uncertain as traders are unsure if the dollar will build on its recent gains.
Much will depend on when the U.S. Federal Reserve believes the economic recovery is entrenched enough that it can raise interest rates from near zero and withdraw other stimulus measures without threatening growth.
As the year drew to a close, Australia's stock market posted its biggest annual gain in 16 years with a sterling 31 percent rise from a year ago, reflecting rising global demand for commodities ranging from iron ore to oil.
There's definitely been a sense -- and there has been for the last several months -- that in Australia we weathered this so much better than anyone else, said Cameron Peacock, an analyst at IG Markets in Melbourne.
The Australian dollar has been the best performing major currency and was on track for a resounding 27 percent gain against the U.S. dollar this year.
The Aussie edged up to $0.8975, from $0.8904 late on Wednesday.
Against a trade-weighted basket of currencies, it is up 25 percent this year, helped by its relatively high yield which has attracted investors as risk appetite improved.
With Australia expected to raise interest rates again soon and demand for commodities seen continuing to rise next year, traders say the Aussie is poised for further gains early in 2010.
Most Asian currencies also strengthened against the U.S. dollar in 2009, led by a 17 percent rally in the Indonesian rupiah, as foreign investors flocked to the region to cash in on its solid recovery.
Regional currencies are likely to gain further in 2010 despite the U.S. dollar's near-term strength, analysts say.
(Additional reporting by Morag MacKinnon in SYDNEY and Kevin Yao in SINGAPORE; Editing by Kim Coghill)