World shares get Japanese boost, yen lags

Caution before German data keeps European share markets below recent highs

Sharp gains in Tokyo pulled global stocks higher on Tuesday after the Bank of Japan pumped more stimulus into the economy, hitting the yen, while caution before German data kept European share markets just below recent highs.

The largesse, in the form of an expanded loan programme to Japan's commercial banks, was partially offset by action to rein in lending in China and more hawkish comments on rate rises in Australia.

The subsequent 3.5% gain for Japan's Nikkei contrasted with the rest of Asia but still helped the MSCI World index edge back closer to the high it hit prior to January's emerging market-led selloff.

The index is now just 0.4% off that peak, helped by a 0.2% gain on Tuesday that was buoyed in turn by London-listed mining heavyweight BHP Billiton , which rose after forecast-beating results.

"I think on a valuation basis stocks still aren't expensive," said Matt Basi, head of sales trading at CMC Markets. "It's natural after the run-up that we saw last year, there's still money parked on the sidelines waiting to do a bit of bargain hunting."

In Europe, with base metals weaker on demand concerns, the BHP gain was not enough stop Basic Resources weighing on the pan-regional FTSEurofirst 300, which edged lower after rising for 8 out of the 9 last sessions.

Traders flagged some caution ahead of ZEW sentiment data in Germany, due at 1000 GMT, although a positive reading could lend fresh support to the region's equities after Germany and France posted stronger than expected growth data.

"Any further improvement (in the ZEW) would back the idea that the current recovery has legs, with business confidence returning to all euro zone member states and not only to Germany," Credit Agricole said in a note.

German Bund futures edged slightly higher to trade up 17 ticks on the day.

US stock futures pointed to a marginally higher open later in the day, a return to work for many after a three-day weekend.

YEN LOSES GROUND

The big loser from the BoJ action and subsequent bank-led Nikkei rally was the yen, which lost ground against all of its major currency peers and saw the dollar gain 0.7% to hit a two-week high of 102.745 yen.

While partly a result of recent data-led dollar weakness, it nevertheless helped the dollar edge higher against a basket of currencies. The euro also rose against the yen, hitting a 2-1/2 week high, but was flat against the dollar.

A run of weak US data - most recently manufacturing output and the last two major payrolls numbers - has put the dollar under pressure and led to fresh speculation about the likely pace at which the US will withdraw its economic stimulus.

That helped gold and silver weather some profit-taking to hold near 3-1/2-month peaks hit on Monday, with gold trading at $1,328.30 per ounce and silver at $21.64.

More insight on the US Federal Reserve's current thinking is likely on Wednesday, when it publishes the minutes of its last meeting.