LONDON (Reuters) - European stock markets rose to their highest since the 2008 financial crisis on Wednesday, helped by signs the U.S. economy is improving and expectations of more pledges of support for growth from major central banks.
The European Central Bank, the Bank of England and the Bank of Japan are all expected to stick to ultra-easy monetary policy at meetings this week, following on from reassurances by U.S. Federal Reserve officials that their stimulus program remains in place.
Analysts even see some scope for fresh action in Europe on Thursday, giving a 40 percent chance for more bond buying from the Bank of England and a 10 percent likelihood of an interest rate cut from the ECB.
That, combined with some encouraging economic data, drove Wall Street's Dow Jones industrial index <.dji> to an all-time high on Tuesday, and world and European share indexes pushed higher on Wednesday.
"It's panic buying," said Nick Xanders, who heads up European equity strategy at BTIG. "At this stage everyone wants to buy it, everyone wants to get involved, and everyone is scared of underperforming."
The pan-European ESTOXX 50 <.stoxx50e> had gained 0.4 percent by 5.45 a.m. ET as Frankfurt's DAX <.gdaxi> jumped 1 percent and London's FTSE 100 <.ftse> and Paris's CAC-40 <.fchi> added 0.2 percent.
Those gains, coupled with a rise in Asian shares overnight, pushed the MSCI world index <.miwd00000pus> up 0.3 percent and just short of a new 4-3/4 year high.
"Indexes are breaking above big resistance levels, and this is creating room on the upside," said Lionel Jardin, head of institutional sales at Assya Capital, in Paris.
"The sentiment is that central banks are going to remain very accommodative for a while, and at the same time companies are in really good shape, with strong cashflows."
Still, with the ECB's meeting in view and worries over the euro zone's debt crisis again on the rise due to Italy's political deadlock, German government bonds recovered some poise after a sell-off in the previous session.
The Bund future was fractionally higher at 145.06 after dropping by around half a point on Tuesday, while Italian and Spanish government bonds also saw minor gains.
Italian center-left leader Pier Luigi Bersani, whose PD party won most votes in last week's inconclusive election, presents his policy plans to his party later. It could be significant if he produces enough to draw support from populist leader Beppe Grillo's Five Star Movement.
After a steady start, the euro was down 0.2 percent against the dollar at $1.3030 as traders waited to see whether the recent disappointing euro zone data and ongoing debt worries would be enough to see the ECB surprise consensus and cut rates on Thursday.
As expected, official data confirmed the euro zone ended the year in its second recession since 2009. Eurostat fleshed out its numbers, showing Germany as the only major euro zone economy to grow in the quarter, at a crawl, while France, Spain and Italy all contracted.
"There's reasonable downside to the euro. The situation in Italy is still uncertain," said Bill Diviney, currency strategist at Barclays.
"Although we don't expect any big changes to President Draghi's stance, he's going to stay fairly dovish, given uncertainties," he added.
Growth-linked currencies were another beneficiary of the broader improvement in sentiment. The Aussie dollar rose 0.2 percent to $1.0280 as data showing moderate economic growth helped it extend its recovery from Monday's $1.0116 eight-month low.
Commodity markets were more mixed, however, following sharp rises in the previous session.
Despite the increasingly positive mood, there are still some areas of concern, namely the Chinese government's move to cool the country's overheated property market, the possible economic impact of U.S. spending cuts, and the deadlock in Italy.
Brent oil fell 0.3 percent back towards $111 a barrel following news of Venezuelan President Hugo Chavez's death, copper traders took profits after two days of gains, while gold edged up 0.2 percent to $1,575 an ounce.
"In the next few days, central bank meetings are on the agenda, and after some economic indicators have surprised to the downside in February, market participants expect renewed assurance that monetary policy will remain expansionary for quite some time," Credit Suisse said in a note.
(Editing by Will Waterman)