Growth hopes pull European shares to 4-1/2 year highs

LONDON (Reuters) - European shares hit a 4-1/2 year high and the dollar rose to its highest level in over seven months on Thursday, as strong U.S. retail sales figures helped bolster hopes of a global economic recovery.

U.S. stock futures also pointed to a tenth straight day of gains on Wall Street with the Dow Jones industrial average anticipating another all-time high.

February's statistics, published on Wednesday, showed consumer buying in the United States grew at the fastest pace since September, the latest data indicating the world's biggest economy is expanding more rapidly.

Released ahead of the Wall Street open, figures from the U.S. labor department added to the mood as they showed number of Americans filing new claims for unemployment benefits unexpectedly fell last week.

The European FTSEurofirst 300 <.FTEU3> was at its highest level since mid-2008 at 1230 GMT, up 0.8 percent on the day as London's FTSE <.FTSE> climbed 0.4 percent, Frankfurt's DAX <.DAX> rose 1 percent and Paris's CAC40 <.FCHI> up 0.8 percent.

Analysts say that the recent stellar run by stock markets is down to the combination of improving growth in key economies such as the United States and the ongoing commitment by major central banks to keep stimulus in place as long as needed.

"The current rally is due to the cyclical expectations for the U.S. economy as it recovers," said Didier Duret, Chief Investment Officer at ABN Amro.

"The better the U.S. performs the bigger the hope that we will see some spill over into Europe... We are overweight in equities and we love it," he added.

The glow of the U.S. data also helped the dollar <.DXY> climb to a new seven-month high as gains across the board helped push it up 0.25 to 83.100 against a basket of currencies.

In contrast, recent dismal economic data from the euro zone, coupled with political uncertainty in Italy and a likely bailout for Cyprus, kept the outlook for the euro bleak.

In Greece, where the euro zone's debt crisis started, new figures showed unemployment rose to 26 percent at the end of last year as its economy continued to contract.

The euro has shed 6 percent from its peak early last month and another 0.25 percent drop saw it hit its latest three-month low at $1.29185.

Euro zone finance ministers meet in Brussels for the start of a two-day meeting later where the main items on the agenda will be the bloc's ongoing troubles as well as a financial rescue of Cyprus.

Bank of Tokyo Mitsubishi currency strategist Derek Halpenny said the euro was likely to remain under pressure, especially if Germany sticks to its demands for spending cuts in debt-strained countries at the meeting.

"If there had been some indication of greater flexibility for France and Spain, at the margins it could have been positive for the euro because there would have been a better growth story, but it doesn't look like that is going to happen," he said.

SPAIN AUCTION

Spanish bonds were also down on the day despite a positive start.

Investors were willing to buy 803 million euros of long-dated Spanish debt at a special auction Madrid had rushed together [ID:nE8N0B7015], but focus remained on the political stalemate in Italy following its recent inconclusive elections.

Markets will find out next Tuesday whether, as looks increasingly likely, new elections will have to be held following the deadlock.

"If there are new elections they won't be until October and that means political uncertainty will remain for most of the year... It could be another interesting summer," said Daiwa securities economist, Tobias Blattner.

Another currency grabbing attention was the Swiss franc, which fell to six month low against the dollar and dropped against the euro after the country's central bank reiterated that it stood ready to stamp out any rise.

The Australian dollar was also in focus after it jumped to a five-week high of $1.0383 after employment data exceeded forecasts to post the biggest increase in over a decade.

COMMODITIES CAPPED

The strong U.S. data also buoyed commodity markets, with prices of growth-attuned oil, copper and platinum all edging higher.

A decoupling appears to have taken place between hard-surging stocks and traditionally growth-linked commodities over the past couple of months.

Whereas the U.S. S&P 500 is up roughly 3.5 percent since the start of February and world shares <.MIWD00000PUS> are almost 2 percent higher, oil and copper prices are down over 5 percent, and platinum and iron ore are down 4.5 and 3.5 percent.

Oil was up 1 percent by 1230 GMT to move back towards $110 a barrel, although its rise was kept in check by the firmer dollar and broader questions over demand in key consuming emerging economies such as China.

Two of the three most closely watched oil forecasters - the International Energy Agency and U.S. government's Energy Information Administration - lowered global oil demand growth forecasts this week.

China's central bank also sent ripples through the market after its comments on stabilizing inflation expectations reinforced concern it may drop its pro-growth policy before economic expansion gathers full momentum.

"A lot of people have been pricing in a strong pick-up in oil demand from China this year and some of those expectations may be pared back," said Natalie Rampono, commodity strategist at ANZ in Melbourne.

(Editing by Alastair Macdonald, Philippa Fletcher and Giles Elgood)