LONDON, Dec 30 - Optimism that 2004 will bring solid economic growth drove European shares to year highs and gave Japanese stocks their first annual gain in four years on Tuesday while the dollar clung on above a new low with the euro. Euro zone government bonds yields were slightly higher on low demand. Gold was at eight-year highs, lifted by the weak dollar. Holiday-thinned trade did nothing to stop equities from forging ahead as they have done for most of this year as global economic recovery has kicked in and investors have bet on more growth next year. European shares clocked up fresh year highs, buoyed by an overnight rally on Wall Street. Blue-chip indexes in London <.FTSE>, Frankfurt <.GDAXI>, Paris <.FCHI>, and Zurich <.SSMI> all hit new peaks for the year. In Japan, the Nikkei average <.N225> reached an eight-week high, up 1.68 percent or 176.02 points at 10,676.64. It meant a 24.5 percent gain for the year as a whole "If the global economy can achieve three to four percent growth, the market will probably produce high single-digit returns next year or even 10 to 15 percent," said Hideo Ueki, chief investment officer at UBS Global Asset Management Japan.
He was speaking of Japan's market, but also reflecting widespread investor optimism on other bourses. The FTSE Eurotop 300 index <.FTEU3> was up 0.4 percent after closing at a 16-month high on Monday. The DJ Euro Stoxx 50 index <.STOXX50E> was gaining 0.7 percent, also at 2003 highs. In New York on Monday, the Dow Jones industrial average <.DJI> closed up 1.2 percent at 10,450 points, its best close since March 2002. The tech-laden Nasdaq Composite <.IXIC> ended up 1.7 percent at 2,006.48 points, its highest finish since January 2002.
DOLLAR WOES
There was little let up for the dollar, however, as the battered U.S. currency teetered near the previous day's record low against the euro. Pressure from low dollar yields and U.S. current account deficit worries showed no sign of abating and the euro was also supported by Monday's German government comment that it was not worried about the currency's strength. The dollar has fallen around 19 percent against the euro this year, is down around 10 percent on the yen, British pound and Swiss franc and has lost 33 percent against the Australian dollar . While strong U.S. economic numbers have boosted global recovery optimism, expectations that U.S. interest rates will remain low have kept dollar deposits unattractive for foreign investors. "At the root of the dollar's weakness is the fact that global capital is not flowing back to the United States," said Kota Kimura, assistant forex manager at Shinkin Central Bank. The dollar was at $1.247 to the euro , down 0.14 percent from Monday's close and near to Monday's record low of $1.2511. It was at 106.93 yen , down 0.13 percent. Euro zone government bond yields were up slightly in a very thin trading session, following some weakness in U.S. Treasuries the previous session in New York. The two-year Schatz yield was yielding 2.508 percent, up 1.2 basis points. The 10-year Bund yield was at 4.304 percent, up 3.7 basis points. Gold was trading around an eight-year high of $416.75 an ounce.//