World stocks started the final month of the year on a positive note Thursday as coordinated liquidity action by the major central banks raised hopes that policymakers may take more drastic action to stem the euro zone debt crisis.
The U.S. Federal Reserve, the European Central Bank and the central banks of Canada, Britain, Japan and Switzerland said on Wednesday they would lower the cost of existing dollar swap lines by 50 basis points from next Monday, and arrange bilateral swaps to provide liquidity for other currencies.
Investor focus has moved to a key European meeting on Dec. 9 to see whether euro zone policymakers will follow through.
Poland's Finance Minister Jacek Rostowski, whose country holds the rotating European Union presidency, said on Wednesday EU finance ministers expect the ECB to step in forcefully to calm bond markets if leaders agree to move towards fiscal union then.
But caution ahead of the summit was enough to keep top-rated German government bonds supported and weigh on some equity indexes.
While the central banks' move was greeted with a typical 'risk on' reaction, we see a risk that the 'hurray crowd' will get disappointed rather sooner than later, said David Schnautz, rate strategist at Commerzbank.
Market expectations about the upcoming policymaker meetings may well run already high, with the risk of under-delivery increasing.
MSCI world equity index rose half a percent, gaining for four consecutive sessions, to a two-week high. The index is still down around 8.6 percent since January.
European stocks slipped 0.3 percent while emerging stocks gained 2.8 percent.
There's relief with the coordinated bank action, but people are now asking why have they done it. You can trade into it, but you will probably sell out of it, said Justin Urquhart Stewart, director at Seven Investment Management.
That sort of enthusiasm just shows how much pent-up frustration there is. There's a huge amount of value there, if you're a bit more confident. But we would also have to see a follow-through (action on the euro zone debt crisis) at the EU meeting next week.
U.S. crude oil added 0.3 percent to $100.64 a barrel.
The dollar was steady against a basket of major currencies while the euro stood at $1.3445, largely unchanged on the day.
Bund futures rose 32 ticks.
Borrowing costs for Spain are likely to be among the highest it has faced since 1997 when it sells up to 3.
France also offers bonds worth up to 4.5 billion euros later in the day. The auction is expected to go smoothly as the size of the issue is considered relatively small and the country's debt has outperformed other triple-A rated paper this week on the back of improved risk appetite.
The three-month euro/dollar cross currency swap spread -- a key gauge of interbank funding stress -- fell further to 127 basis points.
The swap spread hit as high as 167 basis points before the central bank move, a three-year high, as European banks starved of dollar funding from U.S. counterparts rushed to procure dollars in the FX swap market.
(Editing by Anna Willard)