U.S. Economy Hopes Fuel Pre-Christmas Stock Buying

Fresh signs the giant U.S. economy is gaining momentum drove major world stock markets and the euro higher on Friday, with activity likely to be thin in the last session before the Christmas holiday.

Market action will be limited until early January with any gains likely to prove short-lived in Europe, where policymakers are no closer to resolving the region's two-year old debt crisis.

The single currency was up around 0.3 percent for the day at $1.3085, holding above a recent 11-month low of $1.2945 but down around 2.1 percent on the year.

The dollar is still seen as a funding currency when risk appetite improves and people will sell dollars on the back of that, said Chris Walker, currency strategist at UBS.

But we still see uncertainties in the euro zone outweighing and look for a move towards $1.25 in the next few months, he added.

Weekly U.S. initial claims for state unemployment benefits dropped 4,000 to 364,000, Thusday's data showed, the lowest level since April 2008 and just a month after the collapse of Bear Stearns.

The Thomson Reuters/University of Michigan's sentiment index rose to 69.9 from 64.1 in November as measures of both current conditions and future expectations increased.

MSCI's world equity index gained around 0.3 percent since the data was published <.MIWD00000PUS>, but remains on track for a fall of about 12 percent in 2011.

The pan-European FTSEurofirst 300 index gained around 0.6 percent.

The European Central Bank's mid-week provision of 490 billion euros of cheap longer-term cash to over 500 of the region's banks - the largest ever amount of liquidity pumped into the financial system - is expected to support debt markets.

The loans should ease the impact of a wave of capital outflows by U.S. money market funds from European banks that has gummed up interbank market which should support bank shares.

The rosier picture painted by the U.S. data is also supporting commodities, with copper, which is sensitive to expectations of industrial demand, rising 0.78 percent to $7,598.75 a tonne, on course for its first weekly gain in three weeks.

(Additional reporting by Neal Armstrong)