European stocks set for biggest weekly gain of 2014

LONDON (Reuters) - World markets are ending their last full week of 2014 on a high, as Wall Street made its biggest two-day advance since late 2011 and European shares headed for their strongest week of the year.

The gains came amid relief that the Federal Reserve appears in no rush to withdraw stimulus from the U.S. economy and as investors began to see the advantages of lower oil and fuel costs that should ultimately help global growth.

European stocks <.FTEU3> climbed 0.5 percent early on Friday after a 3 percent rally on Thursday, leaving them poised for a weekly gain about the same size. French IT services company Atos SE outsourcing arm. [.EU]

The Japanese yen slipped as risk appetite improved, while most emerging market currencies were steady or stronger. Both Russia's rouble and the Indonesian rupiah stabilized after selloffs this week.

"Risk sentiment is ending the week on a stronger footing after a poor start," said analysts at Barclays. "Market expectations for ECB QE add to the Fed's upbeat message on U.S. growth and stabilization in Russia."

In commodities, oil prices steadied after another wild week. Brent inched up 11 cents to $59.38 after losing over $1.00 on Thursday. U.S. crude added 21 cents to $54.32. Oil has almost halved in price since June.

Major central banks also appeared ready to keep cheap liquidity flowing next year.

The Bank of Japan ended its last policy meeting of the year by re-committing to a massive stimulus campaign, printing yen to buy government bonds. It also offered a brighter view of the economy, a sign of confidence that Japan can weather global market turbulence and the financial crisis in Russia.

"We're making steady progress in shaking off the public's deflationary mindset," BOJ Governor Haruhiko Kuroda told a news conference. [TOP/CEN]

ROUBLE RISE

Japan's Nikkei climbed 2.0 percent to erase most of its recent losses. Australia's main index rose 2.1 percent <.AXJO>.

On Wall Street on Thursday, investors were still celebrating the Fed's pledge to be patient in raising rates. The Dow <.DJI> surged 2.43 percent, the S&P 500 <.SPX> 2.4 percent and the Nasdaq <.IXIC> 2.24 percent. It was the S&P's biggest daily rise since January 2013 and left it up 4.5 percent in two sessions.

In currencies, the main movers were the yen and Russia's rouble , with the latter up 3 percent in Moscow. It was still down 3 percent for the week, despite a huge hike in interest rates by the Russian central bank.

The euro resumed its decline against the dollar, dropping to $1.2276 from the week's peak of $1.2569. That was close to its December trough of $1.2245, and a break there would take it to territory not seen since late 2012.

With the ECB set to ease and the Fed looking to tighten, bond yields have moved in favor of the dollar. The premium two-year Treasuries pay over bunds has grown to 71 basis points, the widest since early 2007. Yields on U.S. 10-year bonds rose to 2.23 percent from as low as 2.00 percent early in the week.

In contrast, Spanish yields fell as low as 1.728 percent, two-tenths of a basis point off their record low. Equivalent Italian yields were equally close to their troughs.

"In the U.S. they are going to be patient (about raising interest rates) and in Europe they are going to be patient for even longer," KBC strategist Pier Lammens said. "We bet on a continuation of the post-FOMC 'risk on' rally."

(Additional reporting by Wayne Cole in Sydney and Marius Zaharia in London; Editing by Larry King)

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