World shares end bumper year, Japan sees best gains since 1972

By Marc Jones

LONDON (Reuters) - World stocks were putting the finishing touches to a bumper year on Monday, steady at a six-year peak as rising benchmark bond yields and commodity prices underscored expectations of firmer global growth in 2014.

Wall Street was set for a quiet start to its final full session of 2013 - its best year since 1997, with a near 30 percent gain.

After years in which financial markets lurched from the debt crisis in Europe to U.S. political deadlock, investors are generally becoming more upbeat on the global economic outlook.

In Europe, Britain's FTSE 100, Germany's DAX and France's CAC 40 all made minor downward adjustments with annual gains running at 14, 26 and 17 percent.

Japanese shares ended 2013 with a flourish, up 0.7 percent - 56.7 percent for the year - as the yen skidded to a fresh five-year low for a third straight session.

Jeremy Whitley, head of European equities at Aberdeen Asset Management, said one reason for the market optimism was that company earnings should improve next year.

"Our belief is that earnings will recover given the improving macroeconomic environment as policy remains very accommodative," he said, regarding Europe.

"However, it is important to be cognisant of the potential headwinds, which include the strength of the euro, austerity fatigue ... and the need for an overarching banking union to provide confidence in the banking system."

Thin year-end conditions made for some more lively moves in the currency market. The euro vaulted as high as $1.3892 on Friday before falling back, and on Monday it was last at $1.3776 having dived as low as $1.3727 in Asia.

Support for the single currency came from comments by European Central Bank President Mario Draghi in Germany's Der Spiegel that he saw no urgent need to cut interest rates again and no signs of deflation.

"At the moment we see no need for immediate action. We don't have Japanese conditions," he said.

WEAK YEN

The rouble fell following a second bombing in as many days in the Russian city of Volgograd, though equity investors largely shrugged off the unrest.

The dollar was steady at 105.20 yen after reaching a peak at 105.415. The yen has posted nine consecutive weeks of falls against the dollar, the longest such run since 1974.

Like the huge rise in the Nikkei, which has seen its best performance since 1972 this year, it is the aggressive policies of Japan's government and its central bank that have been driving the plunge in the yen.

In another promising sign for the country's economy, the Asahi newspaper reported that Japan's most influential business lobby has agreed to encourage its members to raise workers' pay for the first time in six years.

Japan's competitors, however, have been complaining about the weak yen. South Korea's deputy finance minister warned on Monday the yen was falling too fast, and the head of China's National Development and Reform Commission said the impact on neighbours needed to be monitored.

ITALY IN FOCUS

Underpinning both the dollar and euro in recent weeks have been widening yield premiums over Japanese debt.

Yields on the U.S. benchmark 10-year Treasury note have climbed to their highest in more than two years at 3.02 percent since the Federal Reserve said on December 18 it would start to taper its monetary stimulus. The comparable Japanese yield is just 0.735 percent.

Analysts at RBS note that yields on the 30-year Treasury bond were approaching an important level at 4.05 percent, which marks the top of a bull channel going back two decades. A breach there would be viewed as very bearish for bonds.

The only new factor for European debt markets on Monday was a 5.5 billion euro Italian debt sale. Rome paid 4.11 percent to sell its March 2024 benchmark, up slightly from 4.01 percent at a similar auction a month ago.

The sale came as Italy's third-biggest bank, Monte dei Paschi di Siena, was forced to delay a 3 billion euro share sale because of shareholder opposition.

Global growth hopes lifted copper and aluminium to four- and two-month highs, while safe-haven gold edged down to $1,202 per ounce as it trudged towards its biggest annual loss in over three decades, at nearly 30 percent.

Brent and U.S. crude oil were steady at $112.17 and $100.23 a barrel respectively.

(Additional reporting by Wayne Cole in Sydney; Editing by Catherine Evans)