NEW YORK Global stock markets climbed to a five-year high on Friday as investors bet the Federal Reserve would extend its stimulus policy well into 2014, but uncertainty over when U.S. interest rates will rise caused the dollar to sink to an eight-month low.
Better-than-expected results from Google Inc and Morgan Stanley also helped lift stocks on Wall Street, with shares of the Internet search and advertising company surging past the $1,000 mark for the first time.
An acceleration in China's giant economy provided another boost for equity markets, as well as for commodities such as oil and copper, as the prospect of an extended spell of ultra-easy money policy and improving growth buoyed investor sentiment.
MSCI's index that tracks the equity performance of 45 countries rose 0.7 percent to highs last seen in January 2008, while the broad Stoxx Europe 600 rose for a seventh successive day, its longest winning streak this year.
A last-minute deal by U.S. lawmakers this week to avert a debt default and re-open shuttered government offices also has bolstered investor confidence, pushing the broad S&P 500 to a record close on Thursday and new highs on Friday.
But analysts said concerns about the negative impact of the shutdown on the U.S. economy and the likelihood the Fed would leave its bond-buying program intact until well into 2014 would weigh on the dollar, with the euro potentially rising to $1.40.
On the company earnings front, 98 companies in the broad S&P 500 index have reported third-quarter results so far, with 62 percent beating estimates by an average of 4.3 percent. Since 1994, 63 percent of companies have beat earnings estimates.
Google gained 13.8 percent to $1,011.408, while Morgan Stanley rose 2.6 percent to $29.69. Google's surge contributed to almost half of the more than 1 percent gain in the Nasdaq composite index.
"Surprises have been broad-based with all of the nine sectors surpassing their forecasts," said Jonathan Golub, chief U.S. market strategist at RBC Capital Markets in New York.
The Dow Jones industrial average closed up 28.00 points, or 0.18 percent, at 15,399.65. The Standard & Poor's 500 Index rose 11.35 points, or 0.65 percent, to 1,744.50. The Nasdaq composite added 51.13 points, or 1.32 percent, to 3,914.28.
The Nasdaq composite is trading at levels last touched in September 2000 but is still 24 percent from its peak before the tech bubble burst earlier that year.
European shares rose to a five-year high after robust growth data from China for the third quarter, which boosted shares of luxury goods companies and miners.
The Stoxx Europe 600 index extended its rally to seven days, rising 0.79 percent, while the larger FTSEurofirst 300 of leading European shares rose 0.76 percent to close at 1,277.70, a new five-year high.
The dollar fell against a basket of currencies in choppy trade, pushing the dollar index down 0.03 percent to 79.626. The dollar eased on expectations the Fed may delay scaling back its stimulus, which keeps interest rates down.
"The real economy has been negatively impacted by the government shutdown and uncertainty of the debt crisis, all of which pushes out eventual Fed policy normalization, which is bad for the dollar," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The euro rose 0.07 percent to $1.3683, while the dollar was 0.09 percent lower against the Japanese yen at 97.80.
German Bunds rose on the view that the stop-gap U.S. debt deal may hurt the longer-term growth prospects of the world's largest economy and push the Fed's bond-buying program into next year.
Bund futures rose 37 ticks to settle at 140.05.
Brent crude futures rose toward $110 a barrel, supported by a weak U.S. dollar and growth data from China.
Brent crude settled up 83 cents at $109.94 a barrel, while U.S. crude oil rose 14 cents to settle at $100.81.
Investors were relieved by data showing China's economy grew at its fastest pace this year as firmer foreign and domestic demand lifted factory output and retail sales.
China's CSI300 index climbed 0.7 percent, while Australian shares jumped to their highest level since June 2008. Australian exports are closely linked to China's economic fortunes.
Benchmark 10-year U.S. Treasuries fell 1/32 to yield 2.5886 percent.
(Additional reporting by Marc Jones in London; Editing by Chizu Nomiyama, Kenneth Barry, Theodore d'Afflisio and Dan Grebler)