(Reuters) - The dollar hit a seven-month high against the yen and global stocks rallied on Thursday as data showing strong growth in manufacturing activity in Asia, Europe and the United States raised optimism about the economic recovery.
Oil rose to an 18-month high as the economic data prompted buying by funds on the first day of the second quarter, and the higher crude prices helped drive up energy shares on both sides of the Atlantic.
European shares finished at an 18-month closing high, and on Wall Street the Dow industrials edged closer to the 11,000 mark.
Data on Thursday showed factories across China, Europe, the United States and Brazil cranked up production at a faster-than-expected pace, with the Institute for Supply Management reporting that U.S. manufacturing sector grew at its fastest pace in more than five years in March.
Commodities and emerging market assets jumped, while prices for safe-haven Treasury bonds retreated as investors started the second quarter with renewed appetite for higher-yielding assets.
Data showing new U.S. jobless claims fell more than expected last week also boosted sentiment as investors saw more signs that the strong economic recovery in emerging markets is also taking root in the industrialized countries.
The drop in U.S. jobless claims also raised hopes for Friday's key U.S. monthly payrolls report, which is expected to show the economy added 190,000 jobs in March -- an outcome that would likely boost expectations for higher U.S. interest rates.
"We had a slew of nice upside surprises from manufacturing data in China, Europe, the UK. So that's a good start to the month," said Matthew Strauss, senior strategist at RBC Capital Markets in Toronto.
"And if we get a good payrolls number tomorrow, that's a dollar-positive," he added.
The Dow Jones industrial average .DJI rose 69.53 points, or 0.64 percent, to 10,926.16 while the Standard & Poor's 500 Index .SPX was up 8.97 points, or 0.77 percent, at 1,178.40. The Nasdaq Composite Index .IXIC gained 9.01 points, or 0.38 percent, to 2,406.97.
Energy and materials shares led the S&P 500's gains as the news suggested improving global demand for commodities. The S&P energy index .GSPE rose 1.6 percent. The S&P materials index .GSPM advanced 1.8 percent.
In Europe, the FTSEurofirst 300 index of top shares .FTEU3 rose 1.43 percent to 1,094.05, its highest close since late September 2008.
Banks were the top gainers, with STOXX Europe 600 banking index .SX7P up 1.9 percent.
Miners were also in demand as copper hit a 20-month high on signals of improving demand. BHP Billiton (BLT.L), Anglo American (AAL.L), Antofagasta (ANTO.L), Rio Tinto (RIO.L), Xstrata (XTA.L) and ENRC (ENRC.L) rose 1.8 to 4.1 percent.
In Asia, Tokyo's Nikkei average rose to its highest level in a year and a half, buoyed by the fall in the yen, which makes it easier for Japanese exporters to sell their goods abroad.
The MSCI All-Country World Index .MIWD00000PUS of global stocks was up 1.09 percent, after posting a fourth consecutive quarterly gain with a 2.7 percent rise in the first three months of 2010.
The MSCI stock index for emerging markets .MSCIEF climbed 1.77 percent as the HSBC's China Purchasing Managers' Index (PMI) showed first-quarter manufacturing output expanded at the briskest clip in the survey's six-year history.
China's official purchasing managers index rose to 55.1 in March from 52.0 in February, beating the median forecast of 54.5 in a Reuters poll of economists.
In Brazil, industrial production climbed 1.5 percent in February, well above the 0.9 percent forecast by economists in a Reuters poll.
Manufacturing activity in the euro zone also grew last month at its fastest pace in over three years, data showed.
YIELD APPETITE RISES
The U.S. dollar rose as high as 93.89 yen, its best level since August 2009. It was last at 93.86 yen, up 0.43 percent on the day.
The weakening of the yen was also spurred by talk that Japanese investors will look for higher returns abroad now that the new fiscal year has started.
The euro erased early losses and gained 0.45 percent against the dollar to $1.3571. It also jumped to a session high of 1.441 against the Swiss franc as traders mentioned talk of intervention by the Swiss National Bank to prop up its currency.
The pick-up in riskier assets put government bonds under pressure. Benchmark 10-year Treasury prices were down 8/32, with the yield at 3.8646 percent.
The Chinese data also helped spur metals higher, with copper firming to a 20-month high as improving demand sentiment combined with fund buying helped push prices up, while nickel hit a near two-year high at $25,320.
Oil pushed to a near 18-month high, bolstered by talk of fresh inflows from investors at the start of the new quarter. U.S. crude for May delivery last traded with gains or more than 1 percent, at $84.90 a barrel.
(Additional reporting by Steven C. Johnson in New York; Editing by Leslie Adler)
