Global markets surge to 11-month highs

Soft U.S. dollar and strong Chinese industrial data send world markets higher as investors shrug off a downward revision of Japan's GDP.

LONDON (Reuters) -- A weakening dollar and robust Chinese economic data sharpened investor appetite for risk on Friday, sending world stocks to fresh 11-month highs.

Investors shrugged off an unexpected downward revision of Japan's second quarter GDP growth, taking their cue instead from data showing a surprise acceleration in Chinese industrial output, retail and production.

The figures also allayed fears that Beijing would rein in its fiscal and monetary policy too aggressive -- a concern that has stalked markets in recent weeks.

The MSCI main world equity index advanced for the seventh successive session, edging 0.3% higher to its highest level since last October and on track for a nearly 4% gain this week.

Emerging stocks firmed 0.4% to hover at new 12-month highs.

Almost a year after the collapse of U.S. financial giant Lehman Brothers convulsed global markets, financial stocks were among the strongest gainers, helping to push the pan-European FTSEurofirst 300 index 0.5% higher.

"As we approach year highs, and the anniversary of the Lehman Brothers crash, it will be interesting to note if there is a period of reflection next week," said John Murphy, analyst at ODL Securities.

Equity funds in Europe, China and Japan saw robust inflows in the week to Sept. 9 as investors continued to move cash into riskier, higher-yielding assets, according to global fund tracker EPFR.

U.S. Treasury Secretary Timothy Geithner said the government could begin to wind down some of the extraordinary support it put in place for the markets a year ago after the Lehman collapse as the economy had begun to recover.

Geithner's comments did little to ease the pressure on the dollar, which sank to a one-year low against a basket of major currencies on concern over its long term value and increased appetite for higher yielding currencies.

Feeding into bearish dollar sentiment were comments by a U.S. Treasury official that it made sense for China to diversify its huge stockpile of reserves.

"There's discussion about diversification, Fed credibility, and the re-emergence of the U.S. current account deficit," said Michael Klawitter, senior strategist at Commerzbank in Frankfurt, noting data on Thursday that showed the U.S. trade deficit widened in July.

The sliding dollar also helped support commodity price gains although gold pared gains after rising past $1,000 in the overnight Asian session.

U.S. crude softened a touch after a four-day rally that drew strength from a report showing a surprise decline in crude stockpiles.

Emerging sovereign debt spreads, an indicator of risk appetite, tightened 3 basis points to trade at 358 bps over U.S. Treasurys while the December Bund future was up 32 ticks at 121.23 versus 120.90 at Thursday's settlement close.