World stocks ended 2010 at their highest levels in 28 months on Friday and oil touched a 26-month peak as expectations of a further recovery in the global economy supported investors' appetite for risk heading into the new year.
However, recent figures pointing to stronger momentum in the United States, the world's biggest economy, failed to support the greenback, which traded on Friday at its weakest point in nearly six weeks against a basket of major currencies.
The weaker dollar further boosted commodities, with gold finishing the year nearly 30 per cent higher -- its strongest annual performance since 2007 and marking its 10th annual gain. Silver, a cheaper safe-haven alternative to gold, jumped 80 per cent in 2010.
U.S. crude oil topped $92 a barrel on Friday, before settling up $1.54 at $91.38 a barrel. Crude closed the year up 15 per cent on expectations that the economic recovery will drive demand next year and send prices above $100.
Notwithstanding more upbeat U.S. economic prospects, the Federal Reserve is expected to keep monetary conditions ultra-loose to maintain the pace of recovery, which should keep the dollar on the back foot through the first quarter of 2011.
The weak dollar and low yields on U.S. bonds are expected to support riskier assets as 2011 opens.
"In many ways 2010 is ending on a similar note to 2009, with markets rallying on hopes of economic recovery. This is certainly in line with our view of the world economy," said Keith Wade, chief economist at Schroders.
"However, we also recognize that the U.S. is simply kicking the can down the road by avoiding fiscal consolidation. Markets are also far more cautious about the scope for policymakers to remove support than a year ago."
World stocks measured by the MSCI All-Country World Index drifted up 0.2 per cent to their strongest levels since September 2008, ending the year 10 per cent higher.
On Wall Street, the three main stock indexes finished little changed as a year of solid gains was ushered out with a wimper. The S&P 500 posted its best December performance in nearly two decades, up 6.5 per cent for the month.
For the year the S&P climbed 12.8 per cent, the Dow added 11 per cent and the Nasdaq surged 16.9 per cent.
For the day, the Dow Jones industrial average finished up 7.80 points, or 0.07 per cent, at 11,577.51, while the Standard & Poor's 500 Index dipped 0.24 points, or 0.02 percent, at 1,257.64. The Nasdaq Composite Index lost 10.11 points, or 0.38 per cent, at 2,652.87.
"We had a nice year, as far as percentage up, really good numbers for the year," said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania. "It's just drifting and it's entitled to a pullback."
The benchmark MSCI index was supported on Friday by emerging market gains, which offset some profit-taking in U.S., European, and Japanese markets.
Asian stocks ended the year 15 per cent higher, the prime beneficiaries of record low interest rates in much of the developed world.
European shares closed 7.3 per cent higher for the year even as investors pocketed part of those gains, driving the FTSEurofirst 300 index of top shares 0.6 per cent lower.
Emerging markets stocks rose 0.6 per cent on Friday, adding to gains of 16 per cent for the year, according a benchmark MSCI index
Investors remain fretful about the debt situation in the European Union after Italy paid higher yields on Thursday to sell new debt.
Still, the euro jumped 0.7 per cent against the dollar on year-end buying by central banks and real-money accounts. For the whole of 2010, the European single currency saw losses of about 7 per cent against the dollar.
Market confidence in the common currency was bruised by emergency rescues for debt-laden Ireland and Greece. Investors are now seeking the relative safety of the Swiss franc, which hovers at a record peak against the euro.
The euro did manage to recoup some losses in December and climbed above $1.34 on Friday, extending a recovery from a 2010 low beneath $1.19 -- its worst showing since early 2006.
The euro may remain under pressure early in 2011 as an estimated 150 billion to 200 billion euros ($200.8 to $267.7 billion) in euro zone sovereign bonds come to market, and some investors worry demand may be weak.
"Everybody it seems is anticipating a very rocky road for the euro zone over the next three months," said Gareth Berry, G10 FX strategist for UBS in Singapore.
Despite a beating at year-end, the dollar managed to finish the year a bit firmer than it began. The greenback fell 0.6 per cent against a basket of major currencies on Friday, but kept gains of some 1.5 per cent against those currencies for the year, according to the U.S. Dollar Index.
"We're still facing a lot of uncertainty next year, but the U.S. economic data is starting to turn for the better, and I think that will spark dollar gains, particularly against the yen," said Boris Schlossberg, research director at GFT Forex.
Prices of base commodity prices remained well supported, with copper ending the year at a record high.