By Marc Jones
LONDON (Reuters) - World stocks were set for a fourth week of back-to-back gains on Friday, as an easing of China's lending rules capped a week of generally strong U.S. earnings and assurances about the Federal Reserve's stimulus withdrawal.
Wall Street will resume later with both the S&P 500 and Dow Jones at record highs, but it was expected to see a flat start to the day following Thursday's disappointing after-the-bell earnings from tech giants Google and Microsoft.
That was likely to be balanced, however, by global bellwether General Electric after it said it had seen a pick up in orders, and by the long-awaited lending changes in China designed to bolster its flagging growth.
The country's central bank, the People's Bank of China (PBOC), said in a statement it was removing its floor on lending rates for commercial banks, meaning that banks will now be able to cut rates as much as they see fit to attract borrowers.
Major currency and commodity markets were largely quiet, with the dollar pushed back by a firmer yen as traders squared positions ahead of elections in Japan on Sunday and a slightly stronger euro and sterling.
This week's rises in world stocks have been fuelled by solid corporate earnings, especially by U.S. banks, and by reassurance from Fed Chairman Ben Bernanke over the U.S. central bank's easy monetary policy.
Ahead of the U.S. restart, the news from China helped Europe's FTSEurofirst 300 shake off most its morning weakness as it, like MSCI's 45-country all-world index, headed for its first four-week run of uninterrupted gains since May.
Economists have been optimistic about U.S. growth prospects for some time but some are now starting become increasingly upbeat on Europe too.
"Our biggest overweight is still the U.S., that story is just getting better and better, but what has surprised many externally and internally is that we have just gone overweight on Europe," said UBS global macro strategist Ramin Nakisa.
"The biggest acceleration of any region we look at is in Europe at the moment. Emerging markets are slowing down whereas Europe is picking up so you can't wait for the GDP figures because they are always backward looking."
JAPAN ELECTIONS
Asian trading had been choppy overnight with profit-taking on Japan's Nikkei matched by some cautious yen buying ahead of Upper House elections on Sunday.
The elections are expected to strengthen the hand of Prime Minister Shinzo Abe and his radical stimulus strategy, with his ruling Liberal Democratic Party (LDP) and its New Komeito Party (NKP) coalition partner expected to win resoundingly.
Some economists worry that if the LDP wins outright Abe could sideline economic reforms and prioritise more nationalist policies, though that was not the consensus.
"If the LDP-NKP coalition wins control of the upper house and receives a decent mandate for reform, we would remain comfortable with our USD/JPY forecast profile of 103 in 3 months and 105 in 12 months," Barclays Capital analysts wrote in a report.
In the debt market, German Bund futures touched a session low after the lending changes in China but were still very much in a holding pattern having hit their highest level in six weeks in the previous session.
This week's reassurances from Bernanke have helped beat back lingering concerns about sharp near-term rises in bond yields and reduced volatility in both core and emerging financial markets.
Euro zone periphery bonds added to gains on Thursday after the ECB loosened its lending rules with Portugal's bonds rallying in thin trade after the centre-right government easily defeated a no-confidence vote.
G20
Market participants were also eyeing a meeting of Group of 20 finance ministers as it got underway in Moscow for signs of an orchestrated approach to the end of U.S. money-printing, which could help defuse volatility in global markets.
The two-day gathering includes many of the emerging economies that have been at the sharp end of the dollar's surge since Bernanke first signalled in May that the Fed would roll back its bond-buying programme.
After a steady week for commodities, gold edged up to
$1,290 an ounce while Brent oil climbed back above $109 a barrel as it hovered near a three-month high on hopes of a gradual recovery in U.S. demand.
New claims for jobless benefits fell in the world's biggest economy and factory data improved on Thursday, close on the heels of a steep drawdown in U.S. crude stocks for a third straight week.
(Additional reporting by Sudip Kar-Gupta; Editing by Toby Chopra)
