Euro bailout fund hopes boost global stocks, euro

LONDON (Reuters) - Expectations that Germany's top court will give the thumbs up to the euro zone's new and improved bailout fund lifted global shares to a five-month high on Wednesday and sent the euro sailing to its highest level since early May.

Although it could attach some tricky caveats to its 4:00 a.m.EDT decision, Germany's constitutional court is widely expected to give its backing to the euro zone's 700 billion euro European Stability Mechanism, one of several measures the troubled bloc is putting together to try and overcome its three-year-long crisis.

Approval is also a crucial requirement for the European Central Bank's new plan to buy the bonds of struggling euro members.

The positive mood lifted the MSCI global share index to <.MIWD00000PUS> a five-month high of 331.28 points on Wednesday, buoyed by rises in Asia. European markets <.FTSE> <.FCHI> <.GDAXI> were flat.

A favorable court decision would show European sovereign debt and banking issues "are being addressed in a more robust form and obviously would be positive for banks", said Peter Warnes, head of equities at Morningstar.

The optimism also sent the euro to a new four-month high against a dollar weakened by a warning from ratings firm Moody's that it could cut its U.S. sovereign rating.

The dollar index <.DXY> measured against a basket of key currencies hit a four-month low of 79.750. Gold and oil prices were both firm, also boosted by the upbeat euro zone view.

Demand for German government bonds, typically favored by risk-shy investors, continued to drop, while Italian and Spanish bonds were again in favor, underscoring the greater appetite for riskier assets.

(Reporting by Marc Jones; Editing by Will Waterman)