NEW YORK (Reuters) - Agreement to form a German coalition government boosted the euro to a four-year high against the yen on Wednesday and helped buoy stocks around the world, already well bid on signs of more central bank liquidity.
The long-awaited coalition agreement between German Chancellor Angela Merkel's conservatives and the centre-left Social Democrats (SPD) was sealed early Wednesday, paving the way for a government to be sworn in by the end of the year.
U.S. stocks were little changed to higher at the open as investors found few reasons to buy before the Thanksgiving holiday and with major indexes near historic highs.
"A lot of investors are taking a pause, considering whether they should take gains at these levels," said Tim Speiss, head of personal wealth advisors at EisnerAmper in New York. "There's not much out there that will cause significant gains or losses in the markets."
The Dow Jones industrial average was up 20.26 points, or 0.13 percent, at 16,093.06. The Standard & Poor's 500 Index was up 3.80 points, or 0.21 percent, at 1,806.55. The Nasdaq Composite Index was up 13.05 points, or 0.32 percent, at 4,030.79.
Details of the new German government's policies were sparse but included raising the minimum wage and increasing pensions, which should help boost activity in Europe's largest economy.
The deal must still be voted through by SPD members, but ending the political stalemate has amplified the positive tone in equity markets. That tone was set by expectations the super-loose monetary policies of the major central banks would continue into next year.
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The euro peaked at 138.64 yen, its best level since October 2009, and came close to a one-month high against the dollar of $1.3612.
The MSCI world equity index was up 0.2 percent on the day to just over 400 points, close to a level it last reached at the end of 2007.
Europe's main stock markets all edged higher on the news of Germany's grand coalition, helped by some solid earnings from the likes of Belgian discount grocer Colruyt .
The pan-European FTSEurofirst 300 was up 0.7 percent, taking its year-to-date gains to around 14.4 percent and keeping it on track for its best year since 2009.
Wall Street has soared this year, largely on expectations for continued stimulus from the Federal Reserve. Both the Dow and S&P 500 have risen more than 20 percent in 2013, hitting a series of all-time highs, while the Nasdaq on Tuesday closed above 4,000 for the first time since 2000.
ECB READY TO ACT
Signs that the European Central Bank could move early to implement fresh measures to support the struggling euro zone economy and tackle deflationary pressures were also growing, though inflation data on Friday is expected to show a small pickup.
German newspaper Sueddeutsche Zeitung reported on Wednesday that the central bank was considering a new long-term liquidity operation, which would be available only to banks that agreed to use the funding to lend to businesses.
The report follows a string of comments by ECB policymakers in the past week that they stood ready to act. However, many see next week's ECB policy meeting as coming too soon after the bank earlier this month cut rates to a record low.
Debt markets showed little reaction to the developments. German Bund futures slipped 13 ticks to 141.57.
ASIA TENSES
Outside Europe, tensions rose over Beijing's demands that airlines inform it when they plan to fly over disputed islands in the East China Sea. The White House called the demands "unnecessarily inflammatory", and were worrying to some investors.
The United States flew two unarmed B-52 bombers over the islands, while ANA and Japan Airlines stopped sending Chinese authorities their flight plans for routes that pass through the zone.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 percent. Shares in Japan weakened by 0.4 percent to slip further from a six-month peak touched on Monday.
In commodities, Brent crude was capped around $111 a barrel after oil industry group American Petroleum Institute (API) reported a 6.9 million-barrel rise in crude oil inventories, far more than the 600,000 barrels expected by analysts.
Investors have also concluded that a deal between Iran and world powers, which had caused a sharp fall in oil prices, will not bring an immediate increase in crude supplies.
(Reporting by Nick Olivari; Editing by Catherine Evans, Larry King and Chris Reese)