World stocks scaled a four-month peak on Thursday, powered by solid gains in Asia, as investors took heart from signs of improvement in the U.S. economy suggesting regional exporters may need to start cranking up production.

European shares <.FTEU3> also rose in early trade, gaining more than a percent.

A record drop in U.S. business inventories in the first-quarter and surprisingly robust consumer spending were widely seen by economists as positive pointing to a growth pick-up in the world's largest economy in coming months.

The U.S. Federal Reserve tweaked its policy statement to say that the economic outlook was improving while vowing to keep rates at a historic low for a long stretch.

Safe-haven government bonds slid and higher-yielding currencies tied to risk appetite such as the Australian dollar jumped against the low-yielding yen.

Reports that talks between struggling U.S. automaker Chrysler and the government had broken down and a bankruptcy filing was imminent only briefly dented the jump in riskier assets.

People were so bearish that the burden of proof to surprise people is relatively low. What you're getting is a joyless rally, said Adrian Mowat, emerging market and Asia equity strategist at JPMorgan Chase in Hong Kong.

As earnings expectations are revised up with economic activity, the market goes up with that, he said.

Data in Japan showing industrial production grew twice as much as expected in March thanks to strong Chinese demand for electronics is one of the main factors fuelling the rally in Asian technology shares in the past two months.

The multiple signs of economic activity recovering around the world has stoked expectations that Asian companies and exporters may have cut inventories too quickly and may need to switch gears and start restocking to meet demand.

Investors have also taken in stride the outbreak of swine flu around the world that prompted the World Health Organization on Wednesday to raise its threat level, saying the world is on the brink of a pandemic.

Taiwan's TAIEX index <.TWII> posted its biggest daily gain in 19 years with a 6.7 percent rise on expectations for an influx of Chinese investment after a series of cross-straits talks have led to warmer ties between the two countries.

The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> soared more than 4 percent to a six-month high and was up more than 13 percent on the year. The MSCI all-countries world index <.MIWD00000PUS> was up about a percent, mainly driven by the 3.9 percent jump in Japan <.N225>

RESTOCKING TO HELP

The rise came as the forward 12-month price-to-earnings ratio for the benchmark Asian index touched 13.99, the highest since January 2008 and up sharply from a low of 7.87 touched in November when the regional index hit a five-year low, according to data from Thomson Reuters I/B/E/S.

But JPMorgan's Mowat said the forward P/Es tend to look high at low points, and that by their study the Asia market has only been cheaper 5 percent of the time going back to the early 1990s.

Tim Rocks, Asia equity strategist at Macquarie Securities in Hong Kong, said in a report this week that the largest inventory restocking cycle in living memory is under way,

Rocks said that historically Asia benefits from production bounces tied to inventory restocking, with sectors like technology benefiting the most.

Since the beginning of March when the MSCI Asia benchmark bottomed out, the tech sector has been one of the biggest winners with a surge of 41 percent.

South Korean industrial production also beat expectations in March with a 4.8 percent increase, showing that factories across the region are boosting activity.

The solid gains in Asian equity markets outpaced the 2.2 percent rise in the U.S. S&P 500 index <.SPX> on Wednesday, while S&P futures were up about a percent and pointing to a positive start when U.S. markets open later in the day.

Thursday marks the last day of the week for many markets around the world observing May 1 holidays. In Asia, markets in South Korea, Taiwan, Hong Kong and Singapore among others will be closed on Friday.

Japanese markets will be open on Friday but then close Monday through Wednesday for the rest of the country's Golden Week break.

DOLLAR DOWN, AUSSIE JUMPS, KIWI RECOVERS

The dollar slid as investors shifted funds into higher-yielding currencies and riskier assets. The dollar shed 0.75 percent to 84.010 <.DXY>, while the euro climbed 0.9 percent to 41.3370.

Gold and oil prices both edged up.

The Australian dollar was up 1.6 percent at $0.7353, adding to hefty gains scored the previous day as market players chased the relatively higher-yielding currency on the rally in equities.

Even the New Zealand dollar bounced back from an initial slide after the country's central bank cut interest rates by half a point to a record low of 2.5 percent, as expected, and pledge to keep rates low for a while.

The kiwi was little changed at $0.5730 after tumbling more than 1 percent earlier The rate cut and remarks drove the two-year New Zealand swap rate down about 20 basis points.

(Editing by Mathew Veedon)

Japan Electronics