Global stocks extend rally, oil edges off 11-year low

By Nigel Stephenson

LONDON (Reuters) - Global stocks extended a rally into a third day on Wednesday as oil edged away from 11-year lows and the dollar eked out minor gains in trade gradually winding down for the holidays.

European shares rose sharply on the last full trading day before the Christmas break, following Asian bourses higher.

Wall Street looked set to open modestly higher, according to index futures.

The pan-European FTSEurofirst 300 index rose 2.2 percent, with miners, which rallied on higher copper prices, among the top gainers. London-listed Anglo American rose 8 percent while Glencore and BHP Billiton both rose more than 6 percent.

"We think commodities are due for a bounce, and that should help mining stocks," HED Capital managing director, Richard Edwards, said.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.7 percent to the highest in almost two weeks. Tokyo markets were closed for the Emperor's Birthday holiday.

In China, the blue-chip CSI 300 index broke a four-day winning streak and closed down 0.3 percent while the Shanghai Composite index ended down 0.4 percent.

State news agency Xinhua said slashing China's excess steel capacity would be a top priority for the government over the next five years. [nL3N14C1ZC]

MSCI's all-country world stocks index was up 0.36 percent, though it is down 4.5 percent for the year.

Oil prices rose off lows plumbed earlier in the week. Brent crude, the global benchmark, stood at $36.65 a barrel, up 54 cents, still close to an 11-year low of $35.98 touched late on Tuesday.

The dollar strengthened versus the euro and held broadly steady against a basket of major currencies.

The euro fell 0.3 percent to $1.0922 while the Japanese yen gained 0.2 percent to 120.88 per dollar.

The euro has performed well this year at times of risk aversion, as investors have unwound carry trades in which the euro is borrowed then sold for higher-yielding currencies.

"When you are in an environment where rate expectations are stable, the euro is mostly driven by risk sentiment," said Credit Agricole currency strategist Manuel Oliveri in London.

"So we could imagine that the euro goes to $1.10 or so into the end of the year,"

Yields on low-risk government bonds were little changed. German 10-year Bunds, the euro zone benchmark, yielded 0.62 percent, up 2 basis points on the day.

In positive news for bond investors, a closely watched measure of long-term inflation expectations in the euro zone fell to its lowest in more than two months.

The five-year, five-year breakeven forward, a gauge of where markets expect 2025 euro zone inflation forecasts to be in 2020, fell to 1.6625 percent, its lowest since mid-October.

Gold traded at $1,071.60 an ounce.

(Additional reporting by Wayne Cole in Sydney, Jemiam Kelly and Sudip Kar-Gupta in London; editing by John Stonestreet)