World shares lifted by QE; oil up after Saudi king dies

By Marc Jones

LONDON (Reuters) - Stocks and bonds surged worldwide and the euro sank to an 11- year-low on Friday, the day after the European Central Bank announced a quantitative easing plan. Oil rose following the death of the king of Saudi Arabia.

European shares were on course for their strongest week since late 2011 and emerging markets headed for their best in almost 10 months. Italian, Spanish bond yields dropped to record lows.

The ECB announced on Thursday a programme to buy government bonds, which will pump roughly a trillion euros into the stagnant euro zone economy. Europe's FTSEurofirst 300 index responded with a 1.4 percent gain to 1,474 points, a seven-year high.

"What the market is focusing on is the potentially open- ended element of the programme, and what we also see this morning is that euro zone data has been slightly better than expected," said Emile Cardon, the euro zone strategist at Rabobank."

Purchasing manager surveys showed the euro zone economy began 2015 in better shape than expected, although companies are still cutting prices. Markit's Composite Flash reading bounced to a five-month high of 52.2 from December's 51.4, beating forecasts of 51.8.

"We are moving away from the lows towards the end of last year, but the actual rate of growth being signalled is still moderate," said Rob Dobson, senior economist at survey compiler Markit.

Wall Street, which has being losing its advantage over European markets in recent weeks, was expected to open little changed later in the day. It reporting season has been mixed so far. [.N]

SAUDI KING'S DEATH

Asia markets also rallied overnight. MSCI's broadest index of Asia-Pacific shares outside Japan rose to an eight-week high. Japan's Nikkei gained 1 percent, Australia and South Korea made sizeable gains, and Indonesia's stock market scored a record high.

One reason was signs of stabilisation in commodity markets after their battering in the second half of last year. Crude oil prices rose after Saudi Arabia - the world's biggest oil exporter - announced the death of King Abdullah. [O/R]

U.S. crude gained 50 cents to $46.80 a barrel and Brent climbed to $49.27, although both were still heading for weekly losses. Gold was near a five-month high.

Market reaction to an HSBC flash PMI was limited. It showed China's manufacturing growth stalling for a second straight month in January and deflationary pressures mounting. That could reinforce bets China will roll out more stimulus measures.

The dollar was up 0.1 percent at 118.60 yen, on track for a 0.8 percent gain on the week.

The Australian dollar, whose commodity and trade links make it sensitive to Chinese data, fell to a 5 1/2-year low of $0.7980. Pressure on the Aussie has been rising since a surprise rate cut by the Bank of Canada this week. Many think it could be next.

The euro, meanwhile, slumped as low as $1.1260. The single currency was bracing for elections on Sunday in Greece, where the Syriza party leads in opinion polls. A victory by Syriza, which opposes the terms of the Greek bailout, could cause a standoff with Greece's lenders and drive it from the euro zone.

Greek 10-year bond yields were the only ones in the euro zone to rise on Friday.

(Additional reporting by Henning Gloystein in Singapore and Robert Gibbons in New York; Editing by Larry King)