Global stocks hit highest in a year as US rate hike chances fall

• European shares rise with banks in focus after stress tests
• Asia shares rise, global index hits highest since mid-Aug
• Oil prices keep falling after 15% July loss

London (Reuters): Global stocks hit their highest in almost a year on Monday as investors pared back expectations of when US interest rates would rise, while the dollar rose against the yen but held close to lows hit after weak US growth data on Friday.

European shares rose, led by miners, but with banks in focus after the results of stress tests on 51 European Union lenders were published late on Friday.

The pan-European STOXX 600 index rose 0.2%. The banking sub-index fell 0.2%.

Investor concerns had focused on Italy, whose banks are saddled with 360 billion euros of non-performing loans.

Italy’s Banca Monte dei Paschi, the world’s oldest bank, fared among the worst in the stress tests but unveiled a plan to sell off its portfolio of non-performing loans less than an hour before the results came out. Its shares rose 5% on Monday and were among Europe’s top gainers.

Austria’s Raiffeisen, which also had some of the worst test results, was the day’s top loser, down 9.5%.

MSCI’s all-country world share index to its highest since mid-August 2015. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.3%, hitting its highest level in about a year.

“Investors have been shifting money to Asia, which is likely to be least affected by Brexit and as the US Fed appears to be in no hurry to raise interest rates,” said Yukino Yamada, senior strategist at Daiwa Securities.

Factory activity data in China painted a mixed picture. The official Purchasing Managers’ Index showed a surprise contraction in July but a private PMI was stronger than forecast and signalled the first expansion since February 2015.

Chinese shares fell to a one-month low on a regulatory crackdown on speculation.

Tokyo’s Nikkei index closed up 0.4%, led by financials as the dollar fell against the dollar.

The yen, which soared on Friday after economic stimulus measures from the Bank of Japan disappointed investors and the U.S. growth data, fell 0.3% to 102.37 per dollar. The euro was slightly weaker at $1.1165 while sterling gained marginally to $1.3228.

The dollar index, which measures the greenback against a basket of major currencies, rose 0.1%, still close to Friday’s lows. After the U.S. GDP numbers, the chance of a hike by year-end fell to about 33%, according to CME Fedwatch, down from about 50 early last week.

US jobs

Some analysts said date in the coming week, including US payrolls on Friday, would be more supportive of the dollar.

“Our interpretation of the July statement from the FOMC (Federal Open Market Committee) was that if data continues to remain very strong then September looks well underpriced by the market,” said BNP Paribas currency strategist Sam Lynton-Brown, in London.

US Treasury yields edged up on Monday, reversing some of Friday’s falls. Ten-year yields rose 2 basis points to 1.48%. German 10-year yields dipped 1 bps to minus 0.17%.

Oil prices reversed early gains adding ti July’s 15% falls. Brent crude, the international benchmark, traded 12 cents lower at $ 43.41 a barrel.

With stocks in positive territory and the dollar stronger, gold dipped 0.1% to about $ 1,349 an ounce.