World stocks hovered slightly off their record highs on Monday and the dollar firmed as investors gained confidence in the health of the U.S. economy and paid little heed to oil prices near $84 a barrel.
News that major banks are looking to set up a roughly $80 billion fund to buy ailing mortgage securities and other assets, in a bid to prevent the credit crunch from further hurting the global economy was also supporting sentiment.
Much will depend on the assets they buy, but it is a step in the right direction, strategists at Dresdner Kleinwort said.
Reassurance for investors about the strength of the key U.S. economy came on Friday courtesy of positive U.S. retail sales data and figures showing U.S. inflation pressures were largely muted.
Most people had worried the U.S. economy would enter a recession, but the data on Friday showed the economy is not that bad, said Cho Seong-joon, an analyst at Meritz Securities.
MSCI's main world stock index was just below its all-time high reach last Thursday.
Emerging markets stocks gained more than 1 percent. Fund trackers EPFR Global said emerging equities had posted the third week of $5 billion-plus inflows in the latest period.
European equities were flat to higher with the FTSEurofirst 300 index of top European shares up less than 0.1 percent.
Earlier, Japan's Nikkei average added 0.16 percent, or 26.98 points, to end at 17,358.15, while the broader TOPIX index dipped 0.12 percent to 1,657.44.
OIL NEAR HIGH
Oil prices hovered within sight of last week's record high of $84.05 a barrel as mounting tension between Turkey and Iraq added to a rally fuelled by winter supply worries and dollar weakness.
U.S. light, sweet crude for November delivery rose 27 cents to $83.96 a barrel. London Brent crude was up 14 cents at $80.69 a barrel.
Oil has remained above $80 for most of the past month after soaring from below $70 in mid-August.
The dollar hit a fresh two-month peak versus the yen as risk appetite got a boost from the bank fund report. The yen -- a major source of funding for the carry trade -- suffers when risk appetite increases.
The dollar hit a high of 117.82 yen, its highest since mid-August. The euro was up 0.4 percent at $1.4229, within striking range of a record high of $1.4281 hit at the start of the month according to Reuters data.
Euro zone government bond futures marked a fresh three-month low.
Analysts said the rescue plan by major banks to set up a fund to buy ailing mortgage securities and other assets was having a limited adverse effect on Bunds, but markets needed more details on the plan and who would be involved.
The 10-year Bund yield was flat 4.435 percent as was the interest rate-sensitive two-year Schatz yield at 4.236 percent.
(Additional reporting by Richard Barley)