Asia shares follow as Wall Street, Europe lead the pack

By Wayne Cole

SYDNEY (Reuters) - Asian shares got a hand up on Wednesday after strong trade data boosted expectations for U.S. growth while a lessening of sovereign strains in Europe lifted stocks there to the highest since 2008.

Japan's Nikkei again stood out with a rise of 1.9 percent, but some other regional markets remain out of favour as funds flock to assets in the western world.

The dollar climbed against the yen after the U.S. trade deficit shrank to its lowest in four years, thanks mainly to a renaissance in energy production, prompting analysts to revise up forecasts for economic growth.

Barclays, for one, doubled its estimate for last quarter and now predicts annualised growth of 3 percent.

"Investors were relieved to confirm that the U.S. economic recovery is intact," said Nobuhiko Kuramochi, a strategist at Mizuho Securities, adding that eyes are now on Friday's jobs data.

The latest figures offered investors reassurance that the Federal Reserve's decision to taper its asset buying was justified by fundamentals. Minutes of the Fed's December meeting are due later on Wednesday and markets will be hoping for a clear commitment to keeping rates low for a long time to come.

Underlining the brighter mood were reports that the International Monetary Fund will raise its forecast for global growth in about three weeks, breaking a depressingly-long run of downgrades.

All of which helped MSCI's all-country world stock index hit its highest since mid-2008. Both the Dow and the S&P 500 rose 0.6 percent.

That was enough to give most Asian markets a break from recent selling pressure. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.5 percent.

Stocks in Singapore, India and Taiwan all made ground.

The region again lagged European indexes, which hit 5-1/2 year highs on Tuesday led by a near 3 percent jump in Spain. Sovereign risks across the euro zone's periphery have been receding as longer-term borrowing costs fall to multi-year lows.

Financial bookmakers expected UK, German and French equities to open steady on Wednesday.

Yields on Irish 10-year debt dropped to their lowest in eight years after the country's first debt sale since exiting its EU/IMF bailout drew hot demand.

DANGER, DEFLATION!

Yet data out Tuesday also showed core inflation in the EU slowed to a record low of just 0.7 percent in December, fanning fears of deflation ahead of the European Central Bank's policy meeting on Thursday.

It was worries about inflation falling too far that led the central bank to cut interest rates in November.

"This month's data will help reinforce expectations that the ECB are ready and willing to take whatever steps they deem necessary to prevent the economy from slipping into deflation," said economists at ANZ in a note to clients.

"While we think that the ECB will remain on hold this week, we are expecting a very dovish statement from ECB President Draghi."

The uncertainty kept the euro pinned at $1.3633 and not far from its recent one-month low at $1.3570.

The dollar got a boost from the U.S. trade numbers and climbed as far as 80.941 against a basket of currencies, highs last seen in early December. It rallied to 105.01 yen and away from two-week lows of 103.91 set on Monday.

In contrast, investors dumped the Canadian dollar after the country reported a much larger trade deficit than expected, in a blow to the economic outlook there. The dollar was up at C$1.0796 on Wednesday, the highest since mid-2010.

The improving news on global growth was generally positive for industrial commodities and oil.

Brent crude edged up 8 cents to $107.43 per barrel, having broken five straight sessions of losses on Tuesday. U.S. crude firmed 31 cents to $93.99.

Gold slipped as a firmer dollar and the rebound in U.S. stocks prompted investors to take profits. Spot gold was at $1,226.45 an ounce, off from a top on Tuesday of $1,245.25.

(Editing by Eric Meijer & Kim Coghill)