By Dale Faulken
LONDON, Nov 26 - Shares advanced on Monday as investors hoped the U.S. consumer would help spur economic growth in the world's biggest economy but the yen sagged after ratings agency Fitch downgraded Japan's credit rating.
Major bourses in Europe and Asia cheered comments from U.S. Treasury Secretary Paul O'Neill, who said Sunday that the struggling U.S. economy was headed for recovery with holiday sales last Friday alone four percent higher than a year ago. Oil shares retreated, however, in line with a slump in the price of crude.
The yen was just below a 3-1/2 month low against the dollar after Fitch downgraded Japan's long-term local and foreign currency ratings to AA from AA-plus, with a negative outlook. Credit rating agency Standard and Poors also said it could lower Japan's ratings by a steep two notches.
Reports that the U.S. had landed troops close to the Taliban stronghold of Kandahar also boosted market sentiment as investors hoped the war in Afghanistan could soon be over.
"Optimism seems to be the order of the day, -- optimism about Afghanistan, the retail sector and the U.S. economy," said David Thwaites, European equity strategist at BNP Paribas.
By 1245 GMT, the FTSE Eurotop 300 index,<.FTEU3> was up 0.4 percent while the narrower DJ Euro Stoxx 50 index<.STOXX50E> rose 0.45 percent.
Share markets were awaiting Wall Street's opening moves for further direction. U.S. stock index futures were slightly firmer in London by midday indicating a moderately higher open on Wall Street. The Dow Jones Industrials Average rallied 125 points or 1.27 percent on Friday.
Investors are likely to remain cautious ahead of important U.S. economic data this week. Existing U.S. home sales data is due at 1330 GMT.
U.S. gross domestic product data, which is due on Friday, is expected to show the economy contracted by 0.9 percent in the third quarter after a 0.4 percent decline in the second, according to economists polled by . A widely used definition of recession is when an economy contracts for two consecutive quarters.
U.S. consumer confidence figures for November are released on Tuesday. Analysts forecast a marginal rise in confidence from October's reading of 85.5, when the index had plunged from 97.0.

CONSUMER IS KING
Consumer spending accounts for about two thirds of the U.S. economy and officials from the White House on down have urged shoppers to keep buying despite concerns raised by the September 11 attacks.
Wal-Mart Stores Inc., the world's largest retailer, reported record one-day sales on Friday, the day after the U.S. Thanksgiving holiday, and said shoppers continued to visit the chain in droves on Saturday.
Some economists had predicted sales would slump four percent or more last Friday over a year ago amid concerns that consumer confidence, already dimmed by a slowing economy, had taken an additional hit from the terror attacks.
O'Neill said the U.S. economy had now moved back to the recovery phase he believed it was in before September 11.
"I think if you look at the data on September the 10th, we were in the beginning of a recovery phase, and I think we've moved back there," he said.

YEN UNDER PRESSURE
The credit rating downgrade briefly lifted the dollarto an intraday high of 124.47 but the yen clawed back some lost ground, trading at 124.13 by 1245 GMT after Japanese Finance Minister Masajuro Shiokawa dampened speculation that Japan may buy foreign bonds to weaken the yen.
Masajuro said earlier on Monday that the Bank of Japan had not decided on any such a move, adding that there were no formal discussions on the matter within the central bank.
"A lot of the yen's move last week was attributed to speculation over the buying of foreign bonds," said Mitul Kotecha, head of global currency research at Credit Agricole Indosuez in London.
"The fact that we had denials from the Japanese officials is making markets rethink and this should support the yen.
Sterling surged by almost two thirds of a percent against the dollar after a new opinion survey showed only a small minority of the British electorate think the pound should be replaced by the euro.
Last week, the pound took a beating following rumours that the government was planning to mount a push to get Britons to agree on joining the euro in a referendum before or around the time of the next election.
The pound was trading at $1.4175 and 62.16 pence per euro .
The Bank of England and economists have said the pound would need to join the euro at a rate much lower than its current level. For this reason any talk of joining the euro tends to weaken the pound, while suggestions to the contrary tend to strengthen it.