Emerging market bulls push stocks higher

By Marc Jones

LONDON (Reuters) - World shares closed in on one-year highs on Tuesday as the prospect of prolonged cheap borrowing costs and a recent rise in oil prices set off a new emerging market bull run.

Asian stocks reached one-year highs overnight and MSCI's 46-country 'All World' index was close to the same as most of Europe's markets climbed 0.1 to 0.3 percent higher.

Wall Street was also looking set for modest gains when it reopens later after a long Labour Day weekend and with a batch of manufacturing data due.

Britain's FTSE 100 was Europe's laggard, spending a second day in the red, as sterling's slow recovery after the country voted to leave the European Union left investors looking at companies' competitiveness again.

Emerging markets had no such worries. A gain of nearly 1 percent for the main emerging market stock index took its rise over the last three trading days past 3 percent and put it up more than a third since January [EMRG/FRX].

The latest advance came as the prospect of a U.S. interest rate rise was pushed back by weak jobs data on Friday. Rising oil prices helped oil-rich emerging markets such as Mexico, Brazil and Russia.

(EM stocks performance in 2016 http://link.reuters.com/weh36s)

"Emerging markets have continued to rally, supported by a rise in commodity prices and continued expectations that the Fed will remain dovish," said Standard Life Investment's Alex Wolf.

"In addition, there are some fundamental improvements -- August sales improved across many companies and PMI data showed stabilization in China."

Oil markets were calmer, after prices surged, then slid on Monday, when Russia and Saudi Arabia confirmed they had agreed to cooperate to stabilise the oil market, although they offered no immediate plan of action.

U.S. crude was up 50 cents at $45 a barrel. Brent crude was down at $47.32, having swung wildly from $46.40 to $49.40 in the previous session.

The U.S. dollar barely budged against the yen, at 103.67 yen, but fell for a fifth day against the pound and eased to 1.1166 per euro.

Australia's dollar jumped almost 1 percent to $0.7655 after the country's central bank said little on the currency's 10 percent rise since January and kept Aussie interest rates at 1.5 percent.

"One perhaps could have expected some more discussion of the currency, but we probably need to get back above 0.80 for verbal invention to come back into favour," said Tobias Davis, head of corporate treasury sales with Western Union in London.

BOND BOUNCE

Australian shares slipped 0.4 percent after the RBA's decision, but MSCI's index of Asia-Pacific shares outside Japan extended its recent gains as hard-rallying markets like India helped it set a new one-year high.

Japan's Nikkei stock index closed up 0.3 percent as the yen gave up some ground made on Monday, when Bank of Japan Governor Haruhiko Kuroda shied away from detailed talk of fresh BOJ stimulus.

European bonds were also buoyant. Spanish government bond yields slipped below 1 percent, continuing a strong performance that defies growing political uncertainty in Spain.

German Bund yields sagged to minus 0.059 percent as focus turned to the European Central Bank's post-summer meeting on Thursday. Ten-year U.S. Treasuries hovered at 1.6 percent.

There were plenty of statistics for U.S. stocks traders to digest as they readied for ISM data later. Wall Street's rally is now the second longest in history and three-quarters of the firms on the S&P 500 are above their 200-day 'moving' average.

For some investors that is another reason to be looking at emerging markets.

"We have a development where the market is waiting for Fed not to do anything and in that period we get values compressed," said SEB investment management's head of asset allocation, Hans Peterson.

"U.S. valuations reach max levels and the rest of the world eventually converges. So it is a convergence theme we see."

(Additional reporting by Patrick Graham; Editing by Catherine Evans)