LONDON, Feb 16 (Reuters): World shares were set for their best week of gains in six years on Friday after two consecutive weeks in the red, shrugging off a rise in global borrowing costs while the dollar hit its lowest since 2014.
MSCI's world index of stocks, which tracks shares in 47 countries, was up 0.3 per cent after European bourses opened. After suffering its biggest weekly drop since August 2015 last week, the index is now on track for its best showing since early December 2011.
Some investors have been puzzled at the quick rebound, which has coincided with a rise in bond yields on signs that inflation is starting to creep up globally.
The argument commonly offered by economists has been that historically, it is not unusual for stocks and bond market borrowing costs to rise in tandem in a rapidly expanding economy.
"For me it's really a question of maybe. Markets are taking a look at the inflationary outlook and saying OK, maybe rates are going up and maybe the economy will compensate for that," said Michael Hewson, chief markets analyst at CMC Markets.
"That might change if we move to 3 per cent on the 10-year (US Treasury yield)."
The global rise in borrowing costs has been led by that instrument, which hit a four-year high of 2.944 per cent this week. It stood at 2.8877 per cent on Friday.
Yields across the euro area were mostly steady, although Germany's benchmark Bund was within sight of 2-1/2-year highs and set for its biggest weekly rise in eight weeks.
European shares were also set to chalk up healthy weekly gains, snapping a three-week losing streak as earnings updates continued to impress, and volatility and jitters over rising inflation eased.
Among country benchmarks, the UK's FTSE .FTSE was up 0.6 per cent and Germany's DAX.GDAXI added 0.5 per cent, while Italy's FTSE MIB.FTMIB was up 1.0 per cent.
The pan-European benchmark is up 3.0 per cent so far this week, set for its best week since December 2016, but still down around 6.0 per cent from the 2-1/2-year peak it hit in January.
With many Asian markets closed on Friday for the Lunar new year, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 per cent.
Japan's Nikkei rose 1.2 per cent, with investors relieved to see the government appoint Bank of Japan Governor Haruhiko Kuroda for another term, suggesting the central bank will be in no rush to dial back its massive stimulus programme.
