Dollar set for record run, European shares rise

Upbeat German retail sales drives European shares

The dollar was on track on Friday for its best run since it was floated in 1971, notching up a seventh straight month of gains, while European shares headed for their best monthly performance in more than three years.

Cheered by upbeat German retail sales, which posted their biggest annual rise in 2-1/2 years in December, the pan-European FTSEurofirst 300 index advanced on Friday, with Germany's DAX index rising 0.6%.

European gains tracked a late rally on Wall Street on Thursday, where stronger-than-expected US jobs numbers and a rally in Apple and Boeing helped offset some disappointing earnings.

"Retail sales in Germany and Spain, as well as consumer spending in France, are above expectations. These are the first signs for the positive impact from low oil prices and are a good support for equities," Christian Stocker, equity strategist at UniCredit in Munich, said.

Ahead of euro zone inflation data due at 1000 GMT, yields on the currency bloc's lowest-rated bonds dropped, as deflation risks took centre stage again after reassurances from the new Greek government that it is looking for common ground on their bailout problem.

After a bout of investor nerves earlier in the week after the left-wing anti-austerity Syriza party won power, Greek shares tracked higher on Friday. The banking index rose 9.1%, adding to a 12.9% rebound on Thursday.

The euro also edged higher, trading up 0.2% at $1.1344, 2-1/2 cents above an 11-year low of $1.1098 hit at the beginning of the week, and on track for its first week of gains in seven.

But the single currency is still down over 6% for the month, its worst performance in 2-1/2 years, having fallen on the expectation, and then the confirmation, that the European Central Bank would launch a full-scale quantitative easing programme to shore up a flailing euro zone economy.

GOLD

Those gains have helped the dollar gain almost 5% against a basket of currencies so far this year as traders bet that the US Federal Reserve will be the first major central bank to raise interest rates. The dollar index was last down 0.2% at 94.5697, close to an 11-year high.

"There are a lot of investors waiting for a move higher in the euro to reload (on the dollar)," said Michael Sneyd, a currency strategist at BNP Paribas in London. "We are still dollar bulls."

Gold edged up on Friday and was set for its biggest monthly gain in almost a year after a rally fuelled by the ECB's announcement of its 1.1 trillion euro QE programme.

Brent crude edged up to $49.3 a barrel, having found some support from China, where new commercial crude reserves regulations are likely to boost import demand.

Asian shares had wavered between positive and negative territory, with Japan's Nikkei stock average adding about 0.4%.

Investors were likely to remain cautious ahead of fourth-quarter US gross domestic product data at 1330 GMT. A Reuters poll tipped the economy to have grown 3.0%.