* European stock markets head for fifth day of gains
* MSCI Asia-Pacific index nears 2016 peak, Nikkei up 0.9 pct
* Nerves remain: sterling falls back, yen recovers ground
* Oil prices also down after a big surge
By Patrick Graham
LONDON, July 13 (Reuters) - Stock markets traded within
sight of their highest levels this year on Wednesday as the
prospect of stimulative economic policy across the developed
world eased immediate concern over Britain's vote to leave the
European Union.
The swift moves by the Conservative Party that see Theresa
May replacing David Cameron as prime minister on Wednesday have
helped fund a recovery that, aside from sterling itself, has
wiped out the negative reaction to the June 23 vote.
Asian markets outside Japan .MIAPJ0000PUS gained another
third of a percent to come within a hair's breadth of the year's
highs from April, while European shares rose 0.2 percent, on
course for their fifth straight day of gains. .FTEU3
Traders say that concerns over the economic and political
impact of what promise to be torturous exit talks between London
and Brussels have not gone away, but they are certainly on the
back burner for a moment. Expectations that sterling's fall will
help British companies has London's FTSE index trading at its
highest since last August.
"This is a short term relief rally thanks to some certainty
around the swift handover to a new PM," said Tobias Davis, Head
of Corporate Treasury Sales at Western Union in London.
"The path ahead still looks incredibly challenging. Equities
are only rallying thanks to negative yields across most of the
curve in Swiss, German and Japanese markets. In reality, the
economic landscape is deteriorating."
Sterling, whose 14 percent fall made it one of the main
victims of last month's referendum, hit its highest in more than
a week at $1.3340.
But for every blip higher for the pound at the moment there
are more sellers ready to bet it will fall further in the months
ahead and it quickly fell back to stand 0.2 percent lower on the
day at $1.3228.
The yen, investors' go-to currency in times of market stress
was also up half a percent against the euro and dollar after
falling sharply on the back of Japan's move into another round
of stimulative policy.
The debate among currency traders around Thursday's Bank of
England meeting is also now not whether it will cut interest
rates but by how much -- some measure of the concern over the
economy's fate for the rest of the year.
"I'm struck at the enthusiasm of all and sundry to tell us
that European and U.S. growth rates will hardly be affected by
the UK post-referendum slowdown," Societe Generale's Kit Juckes
said in a note to clients.
"That flies in the face of the increased correlation of
major economies' growth rates in an ever more connected world."
STIMULUS
In commodities, oil prices dropped after industry group
American Petroleum Institute (API) reported a surprise build of
2.2 million barrels in U.S. crude stockpiles last week. O/R
Brent crude futures LCOc1 fell 1.6 percent to $47.71 after
surging roughly 5 percent on Tuesday on broad improvement in
risk sentiment.
Japanese Prime Minister Shinzo Abe ordered a new round of
fiscal stimulus spending, as expected, after an election victory
on Sunday. His meeting with former U.S. Federal Reserve Chair
Ben Bernanke, a proponent of "helicopter money" policies -
printing money and directly handing it to the private sector to
stimulate the economy - fuelled speculation that some of the
stimulus plan could be funded by Bank of Japan easing.
The European Central Bank is also widely expected to take a
dovish stance when it holds its policy review a week later.
"After being faced with the prospect of a major slowdown in
global activity in the wake of the Brexit vote, governments and
central banks worldwide are now expected to do their utmost to
reassure markets and provide stimulus," wrote Angus Nicholson,
market analyst at IG in Melbourne.
(Editing by Toby Chopra)