NEW YORK (Reuters) - World shares rose to 17-month highs and the euro surged on Wednesday as hopes grew for a year-end budget deal in the United States and for further monetary stimulus from the Bank of Japan.
Wall Street opened higher but soon faltered as top European company shares scaled fresh 18-month highs on expectations the U.S. "fiscal cliff" will be averted.<.EU>
"We're starting to see signs that there will be a deal on the 'fiscal cliff,' but after two strong days and with a fair amount of uncertainty left, people are just taking money off the table," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
A key business survey in Germany bolstered investor sentiment by suggesting that Europe's biggest economy was likely to bounce back quickly from a slowdown.
The growing confidence in the outlook lifted the euro to a 16-month high against the yen and an 8-1/2 month peak versus the U.S. dollar, while Brent oil rose towards $110 a barrel.
Strong results from Oracle lifted U.S. technology shares but the S&P 500 struggled to extend its best two-day run in a month.
"Continuing loose monetary policy from the major central banks and apparent progress in overcoming the (euro zone) debt crisis has prompted a significant improvement in sentiment," said Bernd Hartmann, head of investment research at VP Bank.
The Dow Jones industrial average <.DJI> was up 4.91 points, or 0.04 percent, at 13,355.87. The Standard & Poor's 500 Index <.SPX> was down 0.06 points, or 0.00 percent, at 1,446.73. The Nasdaq Composite Index <.IXIC> was up 4.88 points, or 0.16 percent, at 3,059.41.
The better tone in global markets was supported by the U.S. Federal Reserve's efforts to boost the U.S. recovery, signs of growing momentum in China and talk that Japan is set for a policy shift to lift itself out of recession.
The latest German Ifo Institute survey of 7,000 firms bolstered this sentiment by finding that business confidence had improved for a second month running in December, in part because of better export prospects.
The brighter outlook has pushed MSCI's all-country world equity index <.MIWD00000PUS> to levels last seen in July 2011. The index rose 0.5 percent on Wednesday, on track for its fifth straight weekly gain.
In Europe, London's FTSE 100 <.FTSE>, Frankfurt's DAX <.GDAXI> and France's CAC-40 <.FHCI> indexes rose by up to 0.5 percent. <.L> The FTSEurofirst 300 index <.FTEU3> rose 0.46 percent to 1142.69.
The euro rose 0.51 percent to 1.3293 to the dollar, a level not seen since April 2011, while against the yen, it gained 0.9 percent to 112.37, its highest since August 2011.
The dollar index <.DXY> fell to 79.077, after hitting a two-month low of 79.008.
Earlier, widespread expectations the Bank of Japan will expand its current asset-buying program at the end of a two-day policy meeting on Thursday had sent Tokyo's Nikkei index <.N225> up 2.4 percent and through the 10,000 point level for the first time since April.
The benchmark 10-year U.S. Treasury note rose 6/32 in price to yield at 1.7996 percent.
Brent crude was up 62 cents to $109.46 a barrel as it headed toward its highest close in two weeks. U.S. oil gained 18 cents to $88.11.
(Additional reporting by Richard Hubbard in London; Editing by Chizu Nomiyama)
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