LONDON (Reuters) - World stocks hit a two-week high on Tuesday as investors shifted their focus to the U.S. presidential vote while they anticipated aggressive interest rate cuts from European central banks this week.
Democrat Barack Obama holds a decisive edge over Republican John McCain in national opinion polls. Trends in the race could become clear soon after the first polls begin to close at 6 p.m. EST in Indiana.
Democrats are also expected to expand their majorities in both chambers of Congress. Obama has proposed an economic stimulus plan that some experts estimate could cost as much as $190 billion. A sweeping Democrat victory would make it easier for the new administration to fight the credit crisis.
"Investors are marking time ahead of the elections, gearing up for all the drama," said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.
"A clear mandate either way is the important thing for equity markets. There is the implicit notion that things were not right anyway, and my impression is that people want someone with the energy to change things, including markets." MSCI world equity index rose 1.2 percent while Europe's FTSEurofirst 300 index gained 2 percent. Asian stocks rose 0.3 percent.
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.
The dollar fell around 0.7 percent against a basket of major currencies.
CRISIS FIGHTERS
The election comes as a recent run of weak data and earnings reports reinforced the view major economies are in recession as market turmoil hurts corporate profits and consumer consumption.
Democrats need to gain nine Senate seats to reach a 60-seat majority that would give them the muscle to defeat Republican procedural hurdles.
"We think an Obama victory will eventually prove negative for the dollar because it is likely to lead to more expansive fiscal policy and a more protectionist-minded White House," Barclays Capital said in a note to clients.
"But in the short-term, an Obama victory, combined with a strong majority in the Senate, is likely to be bullish for the USD, as it will enable Washington to respond more proactively on the management of the financial crisis.
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 rose 0.9 percent on the day.
U.S. crude oil rose 2.2 percent to $65.27 a barrel after industry sources said Saudi Arabia had already made substantial cuts in supplies. Oil was still way below its record high above $147 set in July.
Gold rose to $732.05 an ounce.
The December bund futures was steady on the day.
(Additional reporting by Sitaraman Shankar; Editing by Victoria Main)
