World equities rose on Wednesday to new 11-month highs, after upbeat U.S. data boosted faith in an economic recovery, persuading more investors to sell their low-yield dollars to buy growth-oriented stocks and commodities.
This week's data showing a jump in U.S. retail sales has been interpreted as another sign the world's biggest economy is indeed on the road to recovery -- signals confirmed by Federal Reserve Chairman Ben Bernanke who said on Tuesday the worst U.S, recession since the 1930s was probably over.
The optimism saw fresh cash flood to stock markets worldwide and bolstered oil to above $71 a barrel and gold to 18-month highs. The dollar however fell to a one-year low against a currency basket <.DXY> as investors shifted to riskier assets.
World stocks rose 0.8 percent to the highest levels since early October 2008, while emerging stocks <.MSCIEF> surged 1.5 percent to a new one-year high, trading at levels last touched before the collapse of Lehman Brothers.
When you have comments coming out from Bernanke about a technical recession ending, that's increasing the pressure on the bears, there's a bit of a bear squeeze going on, said Mark Robinson, head of equity research at Unicredit in London.
There is also a stronger fundamental element -- the G10 is pulling out of the slump and Asia is clearly in a V-shape (recovery). That's driving risk trade and commodities -- in the last week and a half, and particularly in the last 24 hours, we have seen a commodity stocks trade, Robinson added.
The FTSEurofirst <.FTEU3> index of top European shares rose 0.8 percent, its eighth rise in nine sessions to the highest since October 2008. The index is up 20 percent this year.
Asian markets set Wednesday's buoyant tone, sweeping to new 2009 highs, with exporters like South Korea and Australia up 1.8 percent and 2.4 percent respectively <.KS11> <.AXJO>.
Japan's benchmark Nikkei <.N225> added a more modest 0.5 percent, restrained in part by uncertainty over the policies of new Prime Minister, Yukio Hatoyama. The Bank of Japan began a two-day meeting but no policy change is anticipated.
Investors even managed to overlook a 1 percent fall in Shanghai <.SSEC>, virtually the only Asian bourse to ease on Wednesday as investors booked profits after three days of gains.
The 2.7 percent jump in U.S. August retail sales -- the fastest growth in 3-1/2 years added to expectations U.S. economic growth would stage a sizeable rebound in the third quarter, as businesses rebuild inventories to meet demand.
That augurs well for the currencies of exporting nations, especially the big commodity producers like South Africa, South Korea and Australia, probably at the expense of the dollar which slipped as deep as 76.376 against a basket of currencies -- the lowest since last October.
The euro powered to new 2009 highs around $1.4690.
The greenback has shed 2.5 percent against the currency basket this month and is down almost 5 percent since early-July.
As the global recovery continues and risk diversification takes place we could see the U.S. dollar stay under pressure for the next six months, said Amber Rabinov, an economist in foreign exchange and international economics at ANZ in Sydney.
The yen gained to a near seven-month high versus the dollar after Japan's incoming finance minister said a strong yen had advantages for the nation's economy.
Silver and platinum prices rose in gold's wake while growth optimism boosted copper and other base metals across the board.
But despite overall exuberance there is some caution, analysts said, citing warnings by the Fed's Bernanke that recovery will be slow and it will take time to create new jobs.
Major indexes seem hesitant to make the jump that would take them past the key one-year anniversary of Lehman Brothers' fall.
Both sides of the Atlantic are saying we are now out of recession but growth is going to be slow and anemic, said Justin Urquhart Stewart, director at Seven Asset Management.
The market still has an attitude that money is to be invested and it's fair value but the economy is showing there is still going to be weakness.
(additional reporting by Carolyn Cohn and Joanne Frearson in London; Anirban Nag and Denny Thomas in Sydney; editing by Chris Pizzey)