Sterling hits six-month high, stocks up as Brexit deal adds to Asian cheer

By Abhinav Ramnarayan

LONDON (Reuters) - A breakthrough in Brexit negotiations pushed sterling to a six-month high against the euro on Friday and added momentum to an upswing in world stocks underpinned by strong economic news from China and Japan.

Britain and the European Union struck a deal on Friday to move on to talk about trade and a transition period after they agreed the outline of their divorce.

Sterling was up nearly half a percent against the euro to hit a six-month high and stock indices across the continent opened sharply up on the news.

"While agreeing a divorce bill has little economic significance for the price of sterling, the political significance of progress in Brexit talks is quite profound," said Viraj Patel, an FX strategist for ING.

"It reduces the tail risk of a 'no deal' scenario and a complete breakdown in negotiations."

Even Britain's FTSE 100 Index, which normally falls when sterling rises because of high number of dollar earners on the list, edged higher.

But it lagged the pan-European share index, which surged 0.9 percent in early trade on Friday, pushing the MSCI world equity index, which tracks shares in 47 countries, up 0.2 percent.

European banking shares were amongst the biggest gainers after financial regulators reached a long-sought deal on Thursday to harmonise global banking rules, but said the rules would take effect in 2022, later than previous expectations for 2019.

While sterling's rise against the euro was most eye-catching, it also edged up against a strengthening dollar,.

The dollar rose 0.2 percent against a trade-weighted basket of its rivals on Friday and was on track for its biggest weekly rise in nearly six weeks after a potential government shutdown this weekend was averted.

U.S. non-farm payroll numbers are due out later today will be closely watched ahead of next week's Federal Reserve meeting, at which a third interest rate hike of the year is largely expected.

Earlier on Friday, Asian shares rallied for a second session in a row as economic news from China and Japan beat all expectations.

Beijing reported exports surged 12.3 percent in November from a year earlier, more than double the forecast, while imports climbed almost 18 percent.

Iron ore and copper imports enjoyed a stellar rebound, which could help stem a recent pullback in commodity prices.

Japan's Nikkei led the way as the yen eased on the dollar, rising 1.1 percent on top of Thursday's 1.45 percent bounce to be almost back where it started the week.

Revised data showed Japan's economy growing twice as fast as first thought as business spending jumped.

Gold steadied at $1,246.59, having finally breached its recent tight trading range to hit a four-month trough at $1,245.60.

Oil prices rose as a threatened strike by oil workers in Nigeria forced a bout of short covering.

Brent futures was up half a percent at $62.50 a barrel, having climbed 98 cents overnight. U.S. crude was up 20 cents at $56.86.

(Reporting by Abhinav Ramnarayan, Additional reporting by Wayne Cole in SYDNEY; Editing by Toby Chopra)