LONDON (Reuters) - World stocks edged higher on Tuesday as Australia's big interest rate cut raised the view Europe's central banks might follow with aggressive action, while investor focus turned to the U.S. presidential vote.
Democrat Barack Obama and Republican John McCain face the verdict of U.S. voters. Obama holds a decisive edge in national opinion polls. Trends in the race could become clear soon after the first polls begin to close at 2300 GMT in Indiana.
The election comes as a recent run of weak data and earnings reports reinforced the view major economies are in recession as the credit crisis, well into its second year, hurts corporate profits and consumer consumption.
Australia's central bank became the latest to cut interest rates, slashing the benchmark rate by a bigger-than-expected 3/4 point to 5.25 percent, the lowest since March 2005.
Australia's surprise move has boosted expectations that central banks in the euro zone and Britain which meet later this week could also aggressively lower the cost of borrowing.
"All eyes are on the U.S. elections but they come against a backdrop of weak data," said Keith Bowman, equity strategist at Hargreaves Lansdown. MSCI world equity index .MIWD00000PUS rose 0.3 percent while Europe's FTSEurofirst 300 index rose a quarter percent. Asian stocks .MIAP0000PUS fell 0.2 percent.
"A clear Obama victory, with or without a Democratic majority in Congress, would meet expectations and could be initially positive for investor sentiment," UBS said in a note to clients.
"An improvement in sentiment should benefit the dollar and equities because of the removal of one large uncertainty."
Risk sentiment is already improving in some markets. In the money market, the spread between U.S. official and market rates narrowed to 240 basis points, a level not seen since late September.
Emerging stocks .MSCIEF inched lower on the day while emerging market spreads tightened 5 basis points.
U.S. crude oil fell 2.4 percent to $62.37 a barrel, falling all the way from its record high above $147 set in July. Gold rose to $726.00 an ounce.
The December bund futures rose 20 ticks.
The dollar .DXY ticked lower against a basket of major currencies while the yen rose to 99.05 yen per dollar.
(Additional reporting by Simon Falush; editing by Stephen Nisbet)
