World stocks have risen and Japan's yen has tumbled after the Bank of Japan poured cold water on monetary tightening expectations and economic and earnings data proved cheery for European markets.
Data showed UK inflation dropped to a three-month low of 10.5 per cent in December, the latest sign that global inflationary pressures are abating. European shares climbed on Wednesday after a string of positive earnings updates.
Europe's STOXX 600 index rose to its highest level since April 2022.
Three factors have propelled stock markets higher, Andreas Bruckner, european equity strategist at BofA Global Research, said.
These were an expectation for a dovish pivot from the US Federal Reserve, economic data that showed companies working overtime to deal with order backlogs, and China's economy reopening faster than expected from COVID-19 lockdowns.
"But the sugar high that markets are on will eventually disappear because it will be impossible to mask an underlying weakness in economic demand," said Bruckner.
London's FTSE 100 scaled a fresh four-and-a-half-year high after the latest UK inflation numbers, although worries over tight monetary policy remained as the rate hovered in double-digit territory.
The internationally focused FTSE 100 edged 0.1 per cent higher. The pan-European STOXX 600 was 0.2 per cent higher, boosted by rate-sensitive technology stocks, while US stock futures were mixed.
MSCI's broadest index of Asia-Pacific shares outside of Japan rose 0.4 per cent.
The market spotlight was also on Japan, where the yen slid and government bond yields fell the most in two decades at one point, retreating sharply from the central bank's 0.5 per cent ceiling after policymakers decided to keep yield curve controls in place.
The 10-year yield plunged as much as 14 basis points to 0.36 per cent at its lowest point, which would have been the biggest one-day decline since September 2003, before edging back up to 0.43 per cent as of 1024 GMT. The yield was at 0.51 per cent prior to the Bank of Japan decision.
"It was a tough day for the bond vigilantes who were positioned to bully the BOJ into a policy change not justified by their economic forecasts," said Sean Callow, a senior currency strategist at Westpac.
The dollar was up one per cent at 12.953 yen but well off session highs.
The dollar index, which measures the safe-haven dollar against six peers, rose 0.4 per cent. It has been undermined lately by falling US bond yields as markets wager the Federal Reserve can be less aggressive in hiking rates.
The pound rose over 0.4 per cent and the euro gained 0.6 per cent.
Oil prices rose on Wednesday, extending the previous session's gains, driven by optimism that the lifting of China's strict COVID-19 curbs will lead to a recovery in fuel demand in the world's top oil importer.
Brent crude LCOc1 futures vaulted 1.30 per cent, to $US87.03 a barrel, following a 1.7 per cent rally in the previous session.
In less than three weeks of 2023, foreign buying of Chinese stocks has exceeded last year's total as investors bet on the country's rapid recovery after COVID-19 lockdowns were lifted.
Data on Tuesday showed China's economic growth had slumped in 2022 to 3.0 per cent - the weakest rate in nearly half a century.
Spot gold rose over 0.2 per cent to $US1,913 per ounce, while copper prices touched seven-month highs.
Three-month copper on the London Metal Exchange was up 0.9 per cent at $US9,367.50 a tonne.