Dollar steadies, shares on best run in two years

By Marc Jones

LONDON (Reuters) - World shares headed for a fifth straight week of gains on Friday, their best run in more than two years, as this week's losses by the dollar, central bank reassurances and a 2016 high for oil all boosted confidence.

Stocks were expected to rise for a third day running on Wall Street when it opens, as the dollar recovered after a third week of declines that took it to its lowest against other major currencies since October.

The dollar had weakened after the Federal Reserve scaled back its forecasts for rate increases and the European Central Bank's chief economist, Peter Praet, indicated the ECB could further loosen its monetary policy.

"As other central banks have demonstrated, we have not reached the physical lower boundary (for interest rates)," he told the Italian newspaper La Repubblica. ECB President Mario Draghi had suggested otherwise last week.

The euro dropped 0.4 percent to $1.1275 and helped European shares overcome an uncertain start. London, Frankfurt Paris pushed up 0.2 to 0.4 percent as they attempted to dodge a first weekly loss in five.

Many other parts of the world have been cheered by the dollar's drop. MSCI's 46-country 'All World' index is set for its fifth week of gains, its best spell since January-February 2014.

"Post the FOMC (Fed) meeting we have seen mostly dollar sellers. People are squaring euro/dollar shorts and moving into longs," said SEB's head of FX spot and NDF markets, Markus Dahlström.

"What we are wary about now is central bank comments as the ECB is not going to want to see the euro appreciate too much, and we have seen that this morning (from Peter Praet's comments).

More encouragement came from oil prices, which reached their highs for the year. Hopes are that low interest rates will feed demand and major producers will agree to freeze output next month.

U.S. crude climbed to $40.92 barrel, its highest since early December and a surge of more than 50 percent since January. Brent crude was $42.35 per barrel, up almost 5 percent on the week.

EMERGING OPTIMISM

The combination of subdued global interest rates and higher oil and commodity prices have helped emerging markets recover from a brutal start to the year and 2015.

Emerging market stocks globally are now up 20 percent since mid-January. MSCI's broadest index of Asia-Pacific shares outside Japan entered positive territory for the year overnight after Wall Street had done the same.

Asia ex-Japan ended up 2.3 percent for the week, to take it past 10 so far this month. The Hang Seng in Hong Kong added 3.6 percent for the week while China's Shanghai Composite index and CSI 300 chalked up roughly 6 percent weekly gains.

They were helped by data showing Chinese home prices rose at their fastest in almost two years in February.

The Chinese yuan also reached a high for 2016, after the People's Bank of China set the midpoint rate at 6.4628 per dollar compared with the previous 6.4961, the biggest daily rise since November.

South Africa's rand continued to suffer from political problems and worries that will be stripped of its investment-grade credit rating.

"Politics can influence policies and the latter in turn influence expected outcomes which finally determine the rating," said Moritz Kraemer, S&P's global chief rating officer.

Low interest rates continued to encourage bond markets. Italian 10-year bond yields fell to their lowest in almost a year to lead an advance in euro zone bonds after Praet's comments.

A host of ratings decisions are due later in the day.

Standard and Poor's is expected to report on Finland, Austria and Portugal. Both Moody's and S&P report on Cyprus, and S&P may also update its view on the Spanish region of Catalonia, which it downgraded in October and put on a negative outlook.

Earlier on Friday, Moody's said eurozone sovereigns' ratings were likely to remain stable in 2016-2017, but a decline in fiscal consolidation, lack of progress on structural reforms and growing political risks all lingered.

(Reporting by Marc Jones; Editing by Larry King)