Europe leads world stocks up

LONDON: World stocks and oil prices rose on Friday as the dollar lost ground broadly, after weak US economic data reinforced the view that the Federal Reserve will be slow to raise interest rates.

Equities have gained this week as risk aversion eased while commodities regained some stability after a sharp sell-off earlier in May, but mixed economic data has capped advances.

Oil rose with US light crude heading towards $100 per barrel as the weaker dollar and advances in stock markets lured investors into the market.

The dollar struggled to make headway against a basket of currencies after data on Thursday showed a slowdown in manufacturing growth in the US Mid-Atlantic region and an unexpected fall in existing home sales in April.

That cemented the view that if economic data continues to disappoint, it could delay Fed action on rates until well into 2012 or later, encouraging investor appetite for riskier assets such as equities.

European shares rose for a third straight day, tracking gains in the United States that were helped by social network company LinkedIn's solid market debut.

The FTSEurofirst 300 index of top European shares was up 0.6 percent, after a 0.7 percent rise in the previous session.

'Most people don't see this market as being particularly stretched. But there's a concern about where the growth comes from,' said Justin Urquhart Stewart, director at Seven Investment Management.

World stocks as measured by MSCI were up 0.3 percent while Asian stocks excluding Japan also inched up.

Japanese stocks ended down 0.1 percent after the Bank of Japan kept interest rates on hold and warned that the economy will remain under strong downward pressure for the time being.

In currency markets, the soft US data gave the euro a respite from recent heavy selling, with the single currency holding much of its overnight gains as investor attention slowly shifted to interest rate differentials and away from the euro zone debt crises.

The euro remains around 4 percent below an early May peak of $1.4940 after a rout in commodities spooked investors, prompting the unwinding of dollar-funded bets in risky assets.

The euro was last at $1.4310 on Friday, well above a seven-week low of $1.4048 struck on trading platform EBS earlier this week.

The dollar index was down 0.1 percent after Thursday's data underscored the view the Fed was likely to keep monetary policy easy in the coming months in contrast to the tightening cycle that the European Central Bank has embarked on.

'Growth prospects still fail to convince the market and the risk surrounding prices is far more moderate,' says BBVA chief strategist Pablo Zaragoza.

'Disappointing activity-related data and mixed signals from employment numbers continue to cast doubt over the US economy's ability to continue growing at above 3 percent, particularly with the oil price still above $100/barrel.'

Financial markets remained on edge over persisting concerns about the possibility of debt restructuring in Greece and before the US Federal Reserve's bond-buying programme winds down next month.

The yield premium of lower-rated euro zone government bonds over German benchmarks rose as disagreement over a possible Greek debt restructuring and upcoming elections in Spain soured investor appetite for riskier debt.

'In our view the Greek situation is being overplayed by the market and we think that the politicians, the European Central Bank and the International Monetary Fund will get around to finding a solution,' said Gavin Friend, currency analyst at nabCapital.

US light crude futures were up 0.9 percent at $99.28 a barrel before their contract expiry later on Friday while Brent crude was up 0.4 percent at $111.87, and spot gold rose on bargain hunting.