London: Optimism about the world economy buoyed equities on Tuesday, particularly in emerging markets, but the dollar continued to slide.
European shares put a cap on global equity gains, backtracking after the previous session's big bounce.
MSCI's all-country world index was up around 0.1 per cent after earlier hitting a high last seen in late September 2008. Its emerging market counterpart gained nearly 1 per cent.
The main index was being dragged down by Europe, where the FTSEurofirst 300 lost 0.3 per cent. It gained 1.4 per cent on Monday, the first day of trading for the year.
"It's a little pause, but overall this is the start of a brand new year, people really want to believe in a good 2010 for stocks, and this sentiment is fuelled by strong macro data and the return of the M&A fever," said David Thebault, head of quantitative sales trading, at Global Equities, in Paris. "We're seeing funds reallocating their assets in favour of equities, and that is something that will support the rally."
Sentiment has been lifted by relatively positive data. The US manufacturing sector grew at its fastest pace in nearly four years in December, its fifth consecutive month of expansion.
Japan's Nikkei gained 0.25 per cent.
"Investors are seeking more risks thanks to better economic conditions," said Tsutomu Soma, senior manager of foreign securities at Okasan Securities in Tokyo.
However, he said the optimism could change if US jobs data due on Friday disappoints.
"Investors feel they need to have the employment data to confirm the US economy is improving solidly," Soma said.
The dollar slipped against a basket of currencies as hopes for the global economy encouraged investors to shift into high-yielding assets.
The dollar index, a gauge of the US currency's performance against six other major currencies, was down 0.2 per cent.
The euro was up slightly at $1.4420 after advancing 0.6 per cent the previous day.
Against the yen, the dollar was down 0.7 per cent at 91.90 yen.
Euro zone government bonds drifted lower with investors reluctant to take big positions ahead of a busy couple of days for supply and the key US employment report at the end of the week.
