World shares ending bumper year, Japan gets best gains since 1972

By Marc Jones

LONDON (Reuters) - World stocks were putting the finishing touches on 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.

Britain's FTSE 100, Germany's DAX and France's CAC 40 all made minor adjustments to their substantial annual gains as investors consolidated a stellar period for equity markets.

In Tokyo, Japanese shares ended 2013 with a flourish, up 0.7 percent - 56.7 percent for the year - as the yen skidded to a fresh 5-year low for a third straight session.

Unlike the past few years when financial markets lurched from the debt crisis in Europe to U.S. political deadlock, investors are generally upbeat on the global economic outlook next year.

Jeremy Whitley, head of European equities at Aberdeen Asset Management, said one of the reasons for the 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 $1.3753 having moved between $1.3727 and $1.3769.

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. (http://www.ecb.europa.eu/press/key/date/2013/html/sp131230.en.html)

WEAK YEN

The rouble fell on Monday 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 up at 105.36 yen after reaching a peak at 105.415. The yen has posted ninth 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.

There were more promising signs for the country's economy when the Asahi newspaper reported 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 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. The comparable Japanese yield is just 0.735 percent.

Analysts at RBS note that yields on the 30-year Treasury bond were approaching any 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 bond markets on Monday was a 5.5-billion-euro Italian debt sale.

It came along with disappointing news for Italy's third-biggest bank, Monte dei Paschi di Siena, after it was forced to delay a 3 billion euro share sale because of shareholder opposition.

Gold edged down to $1,205 per ounce as it trudged towards its biggest annual loss in over three decades at nearly 30 percent, while 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 Jeremy Gaunt)