By Marc Jones

LONDON (Reuters) – The dollar hit a nine-year high and stocks worldwide headed for their first back-to-back rise of the year on Thursday, encouraged by expectations for a U.S. rate increase and new stimulus this month from the European Central Bank.

Steadier oil prices also encouraged risk appetite and helped nudge U.S. and European government bond yields off recent lows. Soft German data saw the euro weaken to near where it began trading in 1999.

The prospect of more ECB stimulus was bolstered by data on Wednesday that showed euro zone consumer prices fell in December for the first time since 2009. Minutes of a Fed meeting released the same day supported the view it would raise rates this year.

The index which measures the dollar against a basket of six other major currencies <.DXY> was at its highest since December 2005. The euro slid to $ 1.1760, not far from the level where it first traded, $ 1.1747.

Europe’s stock markets <0#.INDEXE> also advanced: London’s FTSE <.FTSE> rose 1.9 percent, Frankfurt’s DAX <.GDAXI> 1.7 percent and Paris’s CAC 40 <.FCHI> 2.1, the biggest gain for each in three weeks.

“It is clear that the shift in language from the Fed very much keeps alive the idea they could raise rates around the middle of the year,” HSBC FX strategist, Daragh Maher, said.

The return of global risk appetite lifted emerging-market stocks <.MSCIEF> 1.5 percent, saw Russian stocks surge 5 percent and drove down yields on government bonds from the euro zone periphery. [GVD/EUR]

The latter got a boost on Wednesday when German Chancellor Angela Merkel said she wanted Greece to stay in the euro zone but made it clear she expects Athens to live up the conditions of its bailout.


More evidence the ECB might use its last policy tool – government bond buying – came from German industrial orders, which fell a greater-than-forecast 2.4 percent in November.

However, Japan saw household confidence drop below its level before its central bank ramped up stimulus two years ago. In Britain, another country which used bond purchases to prop up the economy, the pound fell to an 18-month low. [FRX/]

The euro last fetched $ 1.1770 <EUR=>, its lowest since December 2005. Sterling hovered at $ 1.5050 <GBP=D4> down 0.4 percent on the day.

Japan’s yen <JPY=> also weakened, which helped Tokyo’s Nikkei <.N225> outperform its Asian peers. It gained 1.9 percent, versus 1.4 percent for MSCI’s regional index. <.MIAPJ0000PUS> Wall Street <ESc1> was expected to open 0.8 percent higher, after snapping a five-day drop on Wednesday.

Oil held around $ 51 a barrel, after halving in price over the last six months. [O/R]

“We believe that the market is testing water to find where the bottom of crude oil is and it seems for now, $ 50 is the limit for Brent,” Phillips Futures analyst Daniel Ang wrote in a daily note.

Safe-haven gold <XAU=> dropped back towards $ 1,200 an ounce as outflows from the top bullion-backed SPDR fund <GLD> added to the pressure of the stronger dollar. [GOL/]

(Editing by Larry King)