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European shares consolidated close to two-year highs on Friday after the European Central Bank (ECB) expressed cautious optimism on the euro zone's prospects.

Strong Chinese trade data on Thursday also helped lift economists' expectations of a steady global recovery this year, although a pick-up in Chinese inflation on Friday prompted profit-taking on Asia shares outside Japan and dampened oil.

The FTSEurofirst 300 of top European shares opened in positive territory but had returned to a near-unchanged 1164.42 by 0850 GMT, with London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX broadly steady.

It pushed the MSCI index of world shares to 350.08 points, a new eight-month high.

"People are starting to come back to the stock market because they don't have any other option," said Edward Page Croft, managing director at Stockopedia.

"Equities are very overdue a rest but that shouldn't make people through in the towel in my opinion (as) they will continue to be supported by central banks' very accommodative policies."

The major news from the ECB's meeting on Thursday was that none of the bank's policymakers had pushed to cut rates. Last month some had, and the change saw markets largely price out any reduction in rates in the coming months.

It triggered a jump in the euro and the rally resumed as European trading gathered pace, pushing the single currency above $1.3270 and to an 18-month high against the yen and a four-month high versus the Swiss franc.

The dollar, meanwhile, jumped to 89.35 yen, its highest since June 2010, on strengthening speculation new Japanese Prime Minister Shinzo Abe will exert strong pressure on the Bank of Japan to pursue aggressive easing steps.

Japan's cabinet approved on Friday an economic stimulus package in the biggest spending boost since the financial crisis. Abe also said in an interview with the Nikkei newspaper the BOJ should consider maximising employment as a monetary policy goal to help boost the economy.

In the bond market, German Bund futures extended the previous day's losses after the ECB eased expectations of a near-term rate cut.

Expectations of a strong Italian bond auction later in the day, after Spain made a successful start to its 2013 fund raising programme on Thursday, also eroded demand for low-risk Bunds.

Oil prices reacted to the faster-than-expected Chinese inflation data, with Brent crude futures falling back towards $111 a barrel.

Copyright @ Thomson Reuters 2013

Story first published on: January 11, 2013 15:05 (IST)

Tags: European Central Bank, FTSEurofirst 300, FTSE 100, Nikkei 225, CAC 40, Shinzo Abe, Bank of Japan, Brent crude

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