Spain-Catalonia relief edges world stocks to fresh high

By Marc Jones

LONDON (Reuters) - Spanish stocks and bonds rallied and the euro hit a two-week high on Wednesday as European markets took relief from Catalonia stopping short of declaring immediate independence from Madrid.

Catalonia's leader Carles Puigdemont had balked on Tuesday at making a formal declaration of independence, saying the plan would be put on hold and that he instead wanted talks with Spain's government over the region's future.

The move disappointed many pro-independence supporters but pleased financial markets with hopes the gesture would mark a de-escalation of Spain's worst political crisis since an attempted military coup in 1981.

MSCI's 47-country world stocks index briefly hit a fresh record high in opening European trading as a 1.5 percent jump in Spain's IBEX (.IBEX) added to a 10-year high set by Asian shares overnight.

The biggest surge came from Spanish banks which rallied as much as 4 percent (.IBEXIB), while the country's government bond yields - which gauge political tension levels - saw their second biggest fall in a month.

"There was a chance Puigdemont would have made a decisive declaration, so now yields are dropping because there is room for negotiation left," said DZ Bank strategist Christian Lenk.

The euro climbed to a two-week high of $1.18345 against a broadly weaker dollar which was down for a fourth day running in its worst run since July.

U.S. President Donald Trump's public feud with Tennessee Senator Bob Corker, an influential fellow Republican, has raised concern that his push for a tax-code overhaul could be harmed.

At the same time, the Federal Reserve will publish the minutes from its last minute later with a third U.S. rate hike of the year now looking nailed on for December.

"Squabbles surrounding Trump's efforts come as no surprise, but it is still not helping the dollar," said Yukio Izhizuki, senior currency strategist at Daiwa Securities in Tokyo.

Europe's Spain gains bolstered what was already a confident market mood after the International Monetary Fund pushed up its forecast for global growth on Tuesday

That had helped Wall Street hit its latest all-time high.

Asian shares then climbed to their highest in a decade as Japan's Nikkei (.N225) reached its strongest since 1996 despite more losses for scandal-hit Kobe Steel and as South Korean stocks (.KOPSI) made a new all-time top.

"A risk-on mood has set in and money is flowing out of bond funds into equities funds," said Hugh Dive, chief investment officer at Atlas Funds Management.

"One of the biggest drivers of global equities is the United States and some of the macro data coming out from there has been quite positive. There is also this view that China is travelling much better than many people had expected."

FED MINUTES

The dollar was also under pressure amid ongoing uncertainty over who will be the next Federal Reserve chair, with the predictions market site, PredictIt, favouring Fed Governor Jerome Powell as the most likely candidate.

While Powell is regarded as more hawkish than incumbent Janet Yellen, whose term expires in February, analysts say he probably wouldn't look to unwind stimulus as aggressively as some of the candidates on the list.

Dallas Federal Reserve Bank President Robert Kaplan, who votes this year on Fed policy, had also said overnight that he wants to see more signs of upward inflation before raising interest rates again.

The weaker dollar continued to help commodities. U.S. crude (CLcv1) rose 19 cents to $51.11 per barrel and Brent (LCOcv1) added 13 cents to $56.74, also on signs of tighter near-term supply.[O/R]

Gold prices hovered around their highest in two weeks, with spot gold (XAU=) at $1,289.06 an ounce, while industrial bellwether metal copper was just below a 1-month high.

(Reporting by Marc Jones Additional reporting by Abhinav Ramnarayan in London and Swati Pandey in Sydney Editing by Jeremy Gaunt)