Stocks eye two-year high, dollar weak

World stocks approached their highest since September 2008 on Thursday on optimism about global growth next year, while the dollar fell on expectations of further money-printing in 2011 by the U.S. Federal Reserve.
With markets focused on growth prospects for China, a private survey on Thursday showed the country's vast manufacturing sector continued to expand strongly towards the year-end, albeit at a slightly slower pace than in November.
Reflecting views about increased demand from China and others for commodities, copper scaled a fresh peak at $9,550 a tonne, and U.S. crude oil hovered below a two-year high near $92 a barrel.
While quantitative easing by the Fed is expected to boost the U.S. economy, it is also likely to depress the dollar.
"Some market players may be building up positions for the next year. As the Federal Reserve is expected to keep printing dollars, the dollar looks set to cheapen next year," said Tsutomu Soma, manager of foreign securities at Okasan Securities in Tokyo.
The dollar hit a record low against the Swiss franc, a 28-year low against the Australian dollar and a seven-week low against the yen, though ongoing concerns about euro zone debt tempered the U.S. currency's losses against the euro.
China's yuan hit a record high against the dollar after the People's Bank of China set a higher mid-point for the currency cross, sparking expectation of more yuan appreciation in the first quarter of 2011.
"The main message from China remains that growth is accelerating and is poised to again be above trend in Q1 2011," said Danske analysts in a client note.
"We still expect China to hike interest rates three times next year and all hikes are expected to be frontloaded into H1 11. In addition the appreciation pace of the yuan will increase."
On the last trading day of 2010 for many Asian, European and Latin American markets, including Japan and Germany, the MSCI world stock index showed a rise of 10% this year. Emerging market stocks have gained 16% and European stocks have added 9%.
World stocks rose 0.23% from Wednesday's close, eyeing September 2008 highs for a second day, but the FTSEurofirst 300 index of top European shares dropped 0.2%.
German government bond futures rose 45 ticks, pulled up by a rally for U.S. Treasuries after a strong seven-year note auction, with dealers eyeing a sale of Italian longer-dated bonds.