World stocks powered ahead on Thursday and the dollar hit another low against the euro as investors banked on more U.S. interest rate cuts and at least temporarily set aside gnawing fears about global credit.
Wall Street looked set to open higher on hopes for another rate easing after the U.S. Federal Reserve's 50 basis point cut last week.
That boosted confidence about the financial system, lifting stocks and weakening the dollar, which now delivers less returns in some assets.
MSCI's main world stock index was only slightly more than 1 percent below a record high on Thursday and the emerging markets
and non-Japan Asian stock benchmarks were at all-time peaks.
In Europe the FTSEurofirst 300 index of top European shares was up 0.7 percent, led by banks and oil stocks. Japan's Nikkei closed up 2.4 percent.
Reports that investor Warren Buffett may buy into U.S. investment bank Bear Stearns were taken as a sign that investors were regaining faith in the battered financial sector.
Serious investors are going back into the sector ... those who have cash and don't need to borrow (are) buying into good quality financials that have been beaten down, said Justin Urquhart Stewart of 7 Investment Management.
But he also noted the fear below the surface that the full impact of the credit crisis on the financial system and economic health remains unclear.
We shouldn't get too optimistic -- there's poison out there, he said.
Underlining the simmering problems, interest rates in London for three month euro borrowing between banks were fixed at their highest in over six years, reflecting banks' persistently strong demand for cash and a reluctance to lend it out.
It came after the European Central Bank said it had lent out 3.9 billion euros on Wednesday at its premium rate of 5 percent, the largest amount borrowed using the marginal lending facility in almost three years.
That implies at least one financial institution is prepared to pay a high rate to access cash.
The dollar fell to a record low against the euro for a sixth straight session, also weighed by expectations of weak U.S. housing data later in the day.
U.S. economic data this week have provided no respite for the beleaguered dollar and have affirmed the view the Fed will cut its benchmark rate again from 4.75 percent.
The euro rose to a new peak of $1.4174 versus the dollar, according to Reuters data.
The dollar was also near the 15-year low it hit against a basket of major currencies earlier this week.
Euro zone government bond prices were mixed. The interest rate-sensitive two-year Schatz yield was down 1.3 basis points at 4.066 percent.
The 10-year Bund yield was flat at 4.397 percent. Bond prices and yields are inversely related.