By Ritvik Carvalho
LONDON (Reuters) - The dollar rose to its highest level in two weeks on Thursday and world shares rebounded amid a broader recovery in global risk sentiment.
The U.S. currency earlier slipped against the safe-haven Japanese yen after U.S. President Donald Trump said on Wednesday he would recognize Jerusalem as the capital of Israel - a move that imperiled Middle East peace efforts and provoked widespread condemnation.
But as global stocks rose on Thursday, the dollar gained almost half a percent against the yen to trade at 112.72 yen and hit a two-week high against a basket of peers.
The MSCI World Index, which tracks shares in 47 countries, was up 0.1 percent. Futures markets indicated a positive open for Wall Street.
Underpinning some of the dollar's gains, analysts said, was cautious optimism on U.S. tax legislation. On Wednesday, Senate Republicans agreed to talks with the House of Representatives on their two tax bills. Early signs are they can agree on a final bill before a self-imposed Dec. 22 deadline.
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"The corporate tax reform has the potential to have a significantly positive effect on the greenback, but due to other parts of the reform - those that are aimed at preventing tax base erosion," wrote Commerzbank currency strategists in a note to clients.
"It is still unclear how this part of the reform will be designed ... so we might end up with something that was not included in either of the proposals. It is therefore far from certain how much of a dollar-positive effect the tax reform will result in."
Upbeat U.S. private-sector employment data released on Wednesday also provided some support to the dollar. But strategists said the currency would trade in narrow ranges until the release of the closely watched non-farm payrolls report on Friday.
Bitcoin soared to a record high of $14,870 on the Bitstamp exchange, continuing a staggering surge from less than $1,000 at the beginning of the year.
STOCKS RECOVER
European stock markets appeared to take their cues from a general recovery in tech stocks overnight in Asia and Wall Street, but they had turned negative by midday in London as the healthcare sector weighed.
The pan-European STOXX 600 was last down 0.1 percent.
Sylvain Goyon, an equity strategist at France's Natixis, said the recent sell-off in tech shares was not driven by a change in the fundamentals and probably wouldn't last long.
"The key drivers of the industry are still there", he said, arguing that a number of investors had just decided, as year-end neared, to cash in some profits from tech stocks, which have outperformed the market, and reinvest in cheaper financial shares, which are set to benefit from the U.S. tax cuts plan.
Oil rose in a sign that investors are wary of pushing the market lower after an unexpectedly large rise in U.S. stocks of refined products that has increased concern about the demand outlook.
U.S. West Texas Intermediate crude futures traded at $56.15 per barrel in European trade, up 0.4 percent on the day.
Brent futures gained nearly 0.7 percent to $61.62 per barrel.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent as some technology bellwethers rebounded, with Tencent rising over 3 percent and Alibaba more than 2 percent.
In Japan, the Nikkei jumped 1.5 percent, recouping much of its 2.0 percent loss the previous day, which was its biggest fall since late March.
Copper rose as bargain hunters took advantage of recent losses, but analysts expect further downward pressure due to weaker demand from China.
Copper traded at $6,572 a tonne, up 0.2 percent on the day and above a two-month low of $6,507.5 touched on Tuesday.
(Reporting by Ritvik Carvalho,; additional reporting by Jemima Kelly and Julien Ponthus in London and Asia markets team, editing by Larry King)