February 16, 2011 / 5:03 PM / in 9 years

GLOBAL MARKETS-World stocks rally; oil gains on Israel warning

* World stocks gain on earnings optimism

* Israel warning to Iran stokes oil, Swiss franc

* Sterling falls sharply after BoE inflation report (Updates MSCI hitting 30-month highs, adds details, updates prices)

By Wanfeng Zhou

NEW YORK, Feb 16 (Reuters) - Major stock markets rallied to fresh 30-month highs on Wednesday on strong corporate earnings, while oil and the Swiss franc gained after Israel said a move by Iranian warships to traverse the Suez Canal was a “provocation”.

The comments by Israel’s foreign minister, together with reports of political protests in Iran, Yemen and Bahrain, raised worries unrest in the Middle East could disrupt oil supplies. See [ID:nN16REASUR] and [ID:nLDE71F0T5]

U.S. stocks rose after estimate-beating results from technology bellwether Dell Inc. DELL.O and a deal for Sanofi-Aventis (SASY.PA) to buy Genzyme GENZ.O for $20.1 billion in cash.

The euro gained versus the dollar EUR=EBS on the news from Israel. The save-haven Swiss reached a session high versus the dollar CHF=EBS. Traders said the dollar was being sold on the view that this could be a security threat for Israel.

“The dollar is being sold off against the Swiss franc and the euro because, should there be a conflict with Israel, this would be bad for the U.S. as well, “ said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

The MSCI world equity index .MIWD00000PUS rose 0.6 percent to 345.04, after hitting its strongest since August 2008.

Sterling tumbled against the euro and dollar after the Bank of England downgraded its economic outlook in its quarterly inflation report, even as consumer prices spiked higher. That stoked fears of stagflation.

“The key guidance being that any tightening ahead is likely to prove modest with potentially only 0.50 point of tightening in 2011,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFL. “Such guidance has disappointed current market expectations which had moved to discount even more aggressive tightening ahead.”

European share prices also edged higher, supported by strong earnings from French bank Societe Generale (SOGN.PA) and brewer Heineken (HEIN.AS), The pan-European FTSEurofirst 300 .FTEU3 index was last up 0.6 percent.

The gains followed an earlier jump in Japan's Nikkei average .N225 to a nine-month high, helped by a weaker yen and buying by foreign investors.

“There is a growing confidence in the outlook for the global economy. The recovery looks like it is being transformed into a sustainable expansion and that does mean that the outlook for earnings is very positive,” said Mike Lenhoff, chief strategist at Brewin Dolphin.

The Dow Jones industrial average .DJI was last up 71.56 points, or 0.59 percent, at 12,298.97. The Standard & Poor's 500 Index .SPX rose 8.68 points, or 0.65 percent, to 1,336.70. The Nasdaq Composite Index .IXIC gained 20.87 points, or 0.74 percent, to 2,825.14.

OIL GAINS

Brent crude LCOc1 for April delivery rose by $1.16 to $102.80 a barrel, hovering below a 28-month peak of $104.30 on Monday.

U.S. crude CLc1 for March delivery climbed 47 cents to $84.80 a barrel, extending gains after a government report showed crude oil and gasoline stockpiles rose less than expected last week.

A rare show of unrest in Libya added to fears the kind of unrest that toppled the presidents of Egypt and Tunisia could spread to oil-producing countries in the Middle East.

“This morning troubles in the Middle East are back on the agenda, protests in Bahrain and Saudi have drummed up political tension,” said Rob Montefusco, an oil trader at Sucden Financial.

The dollar rose to its strongest level against the yen in more than two weeks JPY=EBS as U.S. Treasury yields rose on fears of rising inflation.

U.S. core producer prices in January rose to their highest rate in more than two years, hinting at a build up in inflation pressures as the recovery gathers pace, a potentially troubling development for the Federal Reserve. [ID:nN16ST1]

(To see an analysis on market inflation expectations click on, [ID:nN15149987])

Emerging stocks .MSCIEF were up 0.4 percent. (Additional reporting by Jessica Mortimer and Jessica Donati in London; Editing by Andrew Hay)

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