NEW YORK/LONDON, (Reuters) – World stocks ended 2010 at their highest levels in 28 months yesterday and oil touched a 26-month peak as expectations of a further recovery in the global economy supported investors’ appetite for risk heading into the new year.
However, recent figures pointing to stronger momentum in the United States, the world’s biggest economy, failed to support the greenback, which traded on Friday at its weakest point in nearly six weeks against a basket of major currencies.
The weaker dollar further boosted commodities, with gold finishing the year nearly 30 percent higher — its strongest annual performance since 2007 and marking its 10th annual gain. Silver, a cheaper safe-haven alternative to gold, jumped 80 percent in 2010.
U.S. crude oil topped $92 a barrel on Friday, before settling up $1.54 at $91.38 a barrel. Crude closed the year up 15 percent on expectations that the economic recovery will drive demand next year and send prices above $100.
Notwithstanding more upbeat U.S. economic prospects, the Federal Reserve is expected to keep monetary conditions ultra-loose to maintain the pace of recovery, which should keep the dollar on the back foot through the first quarter of 2011.
The weak dollar and low yields on U.S. bonds are expected to support riskier assets as 2011 opens.
“In many ways 2010 is ending on a similar note to 2009, with markets rallying on hopes of economic recovery. This is certainly in line with our view of the world economy,” said Keith Wade, chief economist at Schroders.
“However, we also recognize that the U.S. is simply kicking the can down the road by avoiding fiscal consolidation. Markets are also far more cautious about the scope for policymakers to remove support than a year ago.”
World stocks measured by the MSCI All-Country World Index drifted up 0.2 percent to their strongest levels since September 2008, ending the year 10 percent higher.
On Wall Street, the three main stock indexes finished little changed as a year of solid gains was ushered out with a wimper. The S&P 500 posted its best December performance in nearly two decades, up 6.5 percent for the month.
