* Wall Street to follow global stocks higher
* Dollar set for worst quarter in five years
* Germany's 10-year bond yields eyeing record lows
* Futures markets push back U.S. hike forecasts
By John Geddie
LONDON, March 30 (Reuters) - World stocks climbed near the
highest levels this year on Wednesday as investors rowed back
expectations for how fast and how far U.S. interest rates might
rise, bruising the dollar and boosting sovereign bonds.
Wall Street ESc1 was set to build on Tuesday's gains,
which saw the S&P 500 recorded its highest close of the year
after Federal Reserve Chair Janet Yellen urged caution on
further rate hikes in the world's largest economy amid calls
from some policymakers for faster action. [nL3N1712PK
The dollar was set for its worst quarter in five years
against a basket of currencies .DXY , weakening further after
its biggest one-day fall in nearly two weeks.
That move pumped up the euro EUR= to its highest in almost
two weeks and pulled Germany's 10-year bond yields -- the
European benchmark -- towards record lows, as markets shrugged
off German inflation data showing that the European Central
Bank's expansionary monetary policy may be gaining traction.
"She (Yellen) seemed very biased towards the dovish side and
the market is taking that as a signal that the Fed is maybe
trying to engineer a weaker currency or a more buoyant financial
market, or possibly both," Altana Hard Currency Fund manager Ian
Gunner, said.
Futures markets 0#FF: dialed back their expectations of a
rate hike to late 2016 from mid-year, in what some analysts said
might be a slight overreaction.
The MSCI world equity index .MIWD00000PUS , which tracks
shares in 45 countries, rose 0.8 percent to 397.84, the closest
it has been to highs of over 399 set in early January.
The pan-European FTSEurofirst 300 index .FTEU3 advanced
1.4 percent after Asian shares outside Japan .MIAPJ0000PUS
reversed four sessions of losses to jump 2 percent.
Japan's Nikkei .N225 was a rare loser, nudged lower by a
rise in the yen against the dollar.
Debt markets rallied in response to Yellen's speech, with
yields on 10-year U.S. paper US10YT=RR dropping 7 basis points
to a one-month low of 1.80 percent. German equivalents fell 2
bps to 0.13 percent, within touching distance of this year's
trough of 0.102 percent and an all-time low of 0.05 percent hit
last year. GVD/EUR
Bund yields gave up some of those early falls after
inflation data from Germany's regions showed consumer price
growth in the bloc's powerhouse likely turned positive in March,
but remained lower on the day.
"It looks like a bounceback in Germany after a soft set of
February data, but the big picture is still one of very low
inflation," Kenneth Wattret, co-head of European market
economics at BNP Paribas (PA:BNPP), said in the Reuters Global Markets
Forum. (http://emea1.apps.cp.thomsonreuters.com/cms/?pageId=gmf_main-p)
"If you can't generate inflation there, there is not much
chance for the rest of the euro zone. The ECB is trying hard but
it's going to be a long wait for inflation lift-off."
The drop in the dollar helped oil prices regain a little
ground, as did a forecast that U.S. stockpiles may have grown by
less than first thought.
U.S. crude CLc1 added 70 cents to $38.98 a barrel, after
falling around 3 percent on Tuesday. Brent LCOc1 rose 57 cents
to $39.70. O/R
Gold XAU= was down slightly at $1,235.16 an ounce, after
rising almost 2 percent overnight.