By Richard Hubbard
LONDON (Reuters) - Surprisingly strong British growth lifted sterling on Thursday, while world shares rose for a fifth day as a recent run of weak data from other major economies raised expectations of looser central bank policies.
U.S. stock index futures signaled that Wall Street would start firmer as well, although a flurry of major corporate earnings could influence sentiment. <.n/>
The British economy grew by 0.3 percent in the first three months of 2013, beating forecasts of a 0.1 percent increase, as gross domestic product avoided a second successive quarter of decline that would have marked a formal return to recession.
Year-on-year, Britain's GDP expanded by 0.6 percent in the first quarter, its strongest performance since the end of 2011, sending the pound up nearly one percent to a two-month high of $1.
"The markets expected a moderate return to growth, and sterling had appreciated ahead of the announcement. But such a strong rebound promptly sent it skywards," said Chris Redfern, senior dealer at foreign exchange traders Moneycorp.
Sterling rose 1.2 percent against the dollar to $1.5450, its strongest level since February 20, as the GDP figures lessened the likelihood of the Bank of England opting for more quantitative easing. The yield on 10-year gilts also rose 3 basis points to 1.72 percent.
Britain's top share index the FTSE100 <.ftse>, was little changed after the data, which traders saying was largely due to the fact that a large proportion of big British firms generate revenues overseas.
Downbeat earnings weighed on the market on Thursday, with drugmaker AstraZeneca off 2.6 percent, leading the decliners after its sales dropped by a bigger-than-expected 13 percent in the first quarter as patent expiries took a heavy toll. <.l/>
ECB RATE CUT
The strong British data went against a recent disappointing run of economic news from Germany, China and the United States which has fuelled speculation about central bank action.
Senior sources have told Reuters that momentum is building for monetary action to help the recession-hit euro zone and the European Central Bank is likely to cut interest rates by a quarter of a percentage point next week.
Those expectations of an ECB rate cut have lifted European shares back towards their 2013 highs over the past week and kept the euro near a three-week low to the dollar,
On Thursday the FTSE Eurofirst 300 index <.fteu3> index of top European shares was up 0.5 percent at 1,198.50 points and close to the 1,209.05 peak hit in mid-March. Frankfurt's DAX <.gdaxi> was 0.7 percent higher and the Paris CAC-40 <.fchi> rose 0.25 percent. <.eu/>
MSCI's world equity index <.miwd00000pus> had gained 0.5 percent to 346.75 points and was edging back towards its high of for the year of 366.58, hit two weeks ago.
The euro was up 0.4 percent to $1.3070 despite the ECB rate cut talk, moving away from a low of $1.2954 recorded on Wednesday after a German survey of business morale was weaker than expected.
Yields on Italian and Spanish bonds turned higher on Thursday as investors took profits after a recent rally, leaving the Italian 10-year yield up 13 basis points at 4.13 percent. Spain's equivalent bond yield rose 14 basis points on the day to 4.43 percent.
DOLLAR DIP
The dollar was weak, easing 0.6 percent against a basket of major currencies <.dxy>, following news on Wednesday of the biggest drop for seven months in orders for long-lasting U.S. manufactured products. Against the yen it had dropped 0.4 percent to around 99.10 yen.
"Talk about an earlier than expected end to the Fed's quantitative easing program has certainly diminished in recent weeks, which has no doubt played a role in taking some of the wind out of the dollar's sails," said Westpac strategist Jonathan Cavenagh.
The dollar's falls gave a lift to gold and copper prices to recover to near one-week highs.
Three-month copper on the London Metal Exchange rose to $7,046.25 a metric ton, close to its highest level since April 18.
Gold stood at $1,444.11 an ounce up nearly one percent and near its highest level since April 15, when it posted its biggest ever daily drop in dollar terms.
Brent crude oil was steady as the recent disappointing data from Europe and top oil consumers the United States and China, which have stoked worries about global demand for oil, kept a lid on prices.
June Brent crude futures, which have fallen over 5 percent since the start of April, gained 2 cents at $101.75 a barrel, while U.S. crude was up 14 cents at $91.57 a barrel.
(Additional reporting by Anirban Nag and Ana Nicolaci da Costa; Editing by David Stamp and Alastair Macdonald)
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