Emerging markets stocks hit a new year high on Tuesday, rising to levels last seen before the Lehman Brothers collapse, and world stocks in general headed toward a new 2009 peak.
The dollar was lower against a basket of major currencies, indicating greater risk appetite on foreign exchanges. The weaker dollar helped gold rise above $1,000 an ounce.
MSCI's benchmark emerging market index was up around 1.1 percent at its highest level since September 9 last year, a few days before Lehman's demise and a mass market sell-off triggered by fears for the financial system.
World stocks in general as measured by MSCI were up 0.7 percent, within shouting distance of their August 24, 2009, peak.
Although there was a brief pull back last week, equity markets have continued the rally that began in March this year. The world index has gained 62 percent since then while the emerging market sector is up 85 percent.
As we are moving into the fourth quarter, markets and investors are looking to position themselves for the rest of this year and the beginning of next year, said Zsolt Papp, chief economist for emerging Europe at KBC.
There is a bit more optimism toward the global outlook, the IMF has upgraded its 2010 growth forecast. Data for 2009 is not going to affect markets any more.
Investors have been bolstered this week by a number of factors including the weekend decision by G20 finance ministers to keep economic stimuli in place, renewed M&A and a slower decline in U.S. job losses.
Japan's Nikkei closed up 0.7 percent and the pan-European FTSEurofirst 300 was up 0.5 percent. Wall Street was closed for a holiday on Monday but early indications were that it would open solidly higher later in the day.
The caveat to the bullishness on stock markets, however, could be found in gold, which has risen around 6 percent so far this month.
It is being driven in part by the weaker dollar and technical factors, but also by caution about the economy and stock market rally.
There are questions out there over the health of economies, where interest rates are going. All that encourages gold hoarding. There's potential to see the price go even higher, said Sandra Close, an analyst for gold research group Surbiton Associates.
The dollar was down 0.7 percent against a basket of currencies, hitting a one month low.
The euro gained more than half a percent at $1.4418 and the dollar fell nearly three-quarters of a percent to 92.33 yen.
Yields climbed on euro zone government bonds as investors moved out of debt into riskier assets.
The two-year Schatz yield was 1.063 percent, up three basis points, and the 10 year climbed 2 basis points to 3.248 percent.
(Additional reporting by Carolyn Cohn; Editing by Ruth Pitchford)