* Asian stocks set for best week since July
* Europe buoyed by ECB policymaker rate hints
* U.S. and China hike rates, Britain signals rise
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By John Geddie
LONDON, March 17 World stocks perched near a
record high on Friday after a week when most of the world's
biggest economies either raised rates, or signalled hikes, in a
strong sign of confidence about global growth and inflation.
Investors turned their attention to a meeting of world
finance chiefs in Germany starting Friday, where topics
including economic reform, protectionism and exchange rates are
expected to be on the agenda.
With Asian stocks on track for their best week since July,
and European markets buoyant, Wall Street was set to open flat
but close to all-time peaks earlier this month.
The U.S. Federal Reserve kicked things off this week with an
interest rate hike on Wednesday, China followed with its own
hike on Thursday, and then Britain and a European Central Bank
policymaker hinted at higher rates.
The latter two came as somewhat of a surprise to markets
with Britain's economic future in doubt as it exits the European
Union, and the fragile single currency area still being treated
with trillions of euros of central bank money-printing.
The euro briefly hit a five-week high and the bloc's bond
yields and banking stocks climbed on Friday as comments from an
ECB policymaker prompted investors to price in a high chance of
a rate hike by year end.
"There's been a change of heart at the Fed in the last few
weeks, the Bank of England's (Kristin) Forbes yesterday was
flagging a rate hike and then we have the ECB talking about
higher rates," said Richard McGuire, head of rates strategy at
"So when you connect the dots it almost appears as if
central banks can sense that sentiment is sufficiently positive
for them to start normalising monetary policy."
It was the suggestion from the Austrian central bank
governor that the ECB could raise rates before the end of its
quantitative easing scheme - scheduled to run until December -
that was the main focus during European trading.
Euro zone government yields rose broadly on Friday, with
some benchmark German yields touching five-week highs. Money
market rates, which fully price a rate hike for March 2018,
showed an 80 percent chance of a December hike, up from 60
percent a week ago.
Banking stocks across the bloc also gained around 0.5
percent, outperforming the broader index which was
little changed on the day.
The ECB currently has a negative deposit rate which acts as
a tax on banks hoarding money with the central bank.
MSCI's all-country world stock index held
near Thursday's all-time high on Friday, on track to end the
week 1 percent higher.
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 0.4 percent and were on track to end the
week with a 3.5 percent gain, its biggest increase since July.
The euro jumped to a five-week high against the dollar to
$1.0783 early on Friday, extending sharp gains seen after an
election in the Netherlands saw a comfortable win by the sitting
prime minister over a far-right rival.
By 1215 GMT, the euro had edged back to $1.0737, losing some
ground against the U.S. dollar which was staging a tentative
recovery from a five-week low hit earlier on Friday.
While the Fed raised interest rates on Wednesday as widely
expected, it kept its original forecast of three rate hikes this
year, disappointing investors who were expecting a bump up to
four after a string of upbeat U.S. economic data.
Sterling rose for a third day running for the first
time since mid-January and was perched at a two-week high after
a decision by the Bank of England on Thursday to hold interest
rates steady, while hinting it might raise them soon.
"The story in global markets over the past 24 hours has
centred on a broad-based tightening of monetary policy
conditions (and the perception of future tightening)," Chris
Weston, chief market strategist at IG in Melbourne, wrote in a
In commodities, U.S. and Brent crude climbed
away from a 3-1/2-month low breached early this week, supported
by a weaker dollar.
Gold was up slightly at $1,229.50 an ounce. It was
poised to gain around 2 percent for the week, its first in
three, driven by the Fed's more moderate monetary policy stance.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Dhara Ranasinghe, editing by Toby
Chopra and Pritha Sarkar)