World stocks surged to another lifetime peak on Wednesday as robust economic growth and flourishing corporate takeover activity helped to ease concerns about the prospect of higher borrowing costs.
Bonds fell and credit markets strengthened in a sign investors have regained confidence that the U.S. economy is on a steady path -- as indicated by Monday's firm manufacturing data -- and problems in the high-risk subprime mortgage sector are unlikely to inflict broader damage.
U.S. markets were closed for the July 4 Independence Day holiday.
The MSCI world equity index, a gauge for broader stock market performance, hit an all-time high for the second day in a row. Takeover activity, a feature of the four-year bull equity market, was booming in various sectors including the hotel and food industries.
Shares in French hotel group Accor soared 7.5 percent, while Intercontinental Hotel and Whitbread gained 5.3 percent after private equity group Blackstone agreed to buy U.S. group Hilton Hotels for about $20 billion plus debt.
M&A is still alive, said Philip Isherwood, strategist at Dresdner Kleinwort.
The FTSEurofirst 300 index of top European shares was up a third of a percent, edging closer to a 6-1/2 year high set in June.
Euro zone government bonds edged lower, with the September Bund future down 16 ticks.
The iTraxx Crossover index, made up of 50 mostly junk-rated credits, tightened further, reflecting firmer credit markets.
Confidence in stocks served as a welcome switch of focus for a credit market depressed over the past month by a sell-off in asset-backed bonds prompted by rising U.S. mortgage defaults. Concern over riskier credit has pushed the Crossover index some 50 basis points wider over the past four weeks.
Emerging debt spreads over U.S. Treasuries were tighter, with JP Morgan's EMBI+ index down 5 basis points to 169 bps.
Investor appetite for high-yielding assets pushed sterling to its highest in more than a quarter of a century against the dollar before an anticipated UK interest rate rise on Thursday.
The pound rose to $2.0207, its highest since June 1981, before dropping back a bit to $2.0164. The Bank of England is expected to raise rates by 25 basis points from 5.5 percent -- already the highest in the Group of Seven major economies.
London Brent crude traded at $72.68 a barrel, down 25 cents from the previous day's 10-month high, supported by strong summer gasoline demand and low inventory levels in the United States.
Gold rose to $654.25.