NEW YORK (Reuters) - Major world stock markets climbed to their highest in nearly two years on Friday, helped by manufacturing and employment data indicating the global economic recovery is on track.
The euro rose to its highest level against the U.S. dollar since mid-November 2011 after data showed euro zone factories had their best month in January in nearly a year. The yen fell to a two-and-a-half-year low against the dollar and a 33-month trough versus the euro, extending its recent weakness on bets the Bank of Japan will ease monetary policy further.
The MSCI world equity index was up 0.7 percent, helped by surveys indicating Chinese factory output was recovering, while German industrial output posted its best month in nearly a year, though the euro zone as a whole continued to struggle.
U.S. data showed employment grew modestly in January and factory activity touched a nine-month high. Payrolls rose by 157,000 last month and revisions showed 127,000 more jobs created in November and December than previously reported. Separately, the Institute for Supply Management said its index of national factory activity rose to 53.1 last month, its highest since April, from 50.2 in December.
Other data on Friday also suggested that the surprise contraction in U.S. economic activity in the last three months of 2012 was largely a fluke, not a trend.
"Fundamentals are looking good today after the data, but overall, the money that was on the sidelines is finally coming into the market again," said Doug Cote, chief market strategist at ING Investment Management.
The Dow Jones industrial average closed up 149.21 points, or 1.08 percent, at 14,009.79. The Standard & Poor's 500 Index was up 15.06 points, or 1.01 percent, at 1,513.17. The Nasdaq Composite Index ended up 36.97 points, or 1.18 percent, at 3,179.10.
The Dow industrials rose above 14,000 for the first time since mid-October 2007 and the S&P touched its highest since December of that year. The gains are the fastest start to the year for equities in 16 years.
European shares inched up as investors took advantage of the past two sessions' losses to snap up cheapened equities, reassured by the run of solid data from China, Europe and the United States.
The pan-European FTSEurofirst 300 closed 0.3 percent higher at 1,168.08, clawing back some of the retreat suffered in the previous two sessions and edging toward a two-year peak set earlier in the week.
"Providing there are no further setbacks to the region's debt crisis, these data add to the expectation that the euro zone is on course to return to growth by mid-2013," said Chris Williamson, chief economist at data compiler Markit.
The euro was up 0.6 percent at $1.3657, with its session high at $1.3711. The currency also hit its highest point against the yen since April 2010, helped by factory activity data showing the worst of the euro zone's downturn may be over.
"The latest data is a great mix for a broadening of the 'risk-on' trade," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.
The benchmark 10-year U.S. Treasury note was down 13/32, the yield at 2.0321 percent. Prices for U.S. Treasuries seesawed on Friday after the slight rise in the unemployment rate was checked by a separate report showing U.S. manufacturing growth picked up in January.
Gold was up 0.3 percent at $1,667.39 an ounce, although it pared gains in the wake of the U.S. payrolls data. Silver was up 1.4 percent at $31.83 an ounce and three-month copper on the London Metal Exchange rose to $8,310 a tonne, its highest since early October.
In the oil market the rising economic optimism coupled with tension across the Middle East, the world's biggest oil producing region, has put Brent crude on track to its biggest weekly gain since mid-November, while U.S. crude is set to rise for an eighth straight week.
Brent oil was up 0.9 percent to $116.59 a barrel, while U.S. crude futures rose 15 cents to $97.64.
Reporting by Nick Olivari; Editing by James Dalgleish