European, Asian shares rally, dollar dips on US rate outlook

Chinese shares rise over 3% to seven-week highs

Shares got off to a strong start to the week in Europe and Asia on Monday while the dollar dipped towards three-week lows, with investors unconvinced the US Federal Reserve would raise interest rates later this year.

China was again in focus as mainland shares jumped over 3% to seven-week highs and the yuan currency hit its strongest level since its surprise devaluation in August.

Chinese data may be the highlight of the week, with investors looking to trade figures on Tuesday to gauge the extent of the slowdown in the world's second-largest economy.

Despite a strong start to the fourth quarter for global stocks, investors remain concerned about the threat of slowing global growth even though central banks have pumped billions of dollars into their economies.

"This global economic slowdown would be less of an issue if it was not being made worse by deflationary pressures and did not occur at a time when confidence in central banks' ability to provide an effective solution is starting to be questionable," said Didier Saint-Georges, managing director and member of the investment committee at Carmignac.

The pan-European FTSEurofirst 300 stock index rose 0.3%, though Germany's DAX added 0.8% thanks to big gains for utilities RWE.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.8%, extending an impressive 11% rise this month as investors unwound some of their long dollar and short commodities and emerging markets trades.

Chinese shares rose after the central bank took fresh steps to inject liquidity into the struggling economy and said the stock market's correction "is almost over".

The CSI 300 index of the largest listed companies in Shanghai and Shenzhen rose 3.2% and the Shanghai Composite added 3.3%.

"Any sign of stimulus is being seized by the markets as a sign of stabilisation and there is some bargain hunting, especially in the beaten down sectors, related to commodities," said Nicholas Yeo, head of equities (China/Hong Kong) at Aberdeen Asset Management with assets under management of US$490.8 billion globally.

Japanese markets were closed for a holiday.

The dollar index, which measures the greenback against a basket of currencies, was down slightly and close to Friday's three-week low on expectations the Federal Reserve would not raise interest rates this year.

This despite a number of Fed official saying in recent days that a first hike since 2006 could still come before the year is out.

SOFT DATA

Instead, investors have focused on soft economic data, especially after weak US jobs numbers last month, and the Fed's own concerns about global economic growth.

The euro was less than 0.1% stronger at $1.1377 and the yen up a similar amount at 120.15 to the dollar.

China's yuan firmed as far as 6.3187 to the dollar, its strongest since the Aug. 11 devaluation.

Oil prices rose after the number of active US rigs fell to its lowest since July 2010. Brent crude, the global benchmark, traded 40 cents higher on the day at $53.05 a barrel, having settles at a three-month high on Friday.

Gold jumped to a seven-week high, boosted by the weaker dollar and the US rate outlook. The metal last traded at $1,164 an ounce, off a high of $1,166 touched earlier.