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World markets eke out further gains as mood calms

LONDON Financial markets were calm Wednesday helping stocks to eke out gains for the second day running. Gold prices though were suffering, falling to three-year lows as the strength of the dollar continues to undermine the precious metal.

Over recent weeks, markets have been volatile amid concerns over U.S. monetary policy. Last week's confirmation from Ben Bernanke, the chairman of the Federal Reserve, that the central bank may start reining in its monetary stimulus this year prompted big falls in stock markets as well as a sharp appreciation in the dollar. The extra money provided by the stimulus in recent years has found its way back into financial markets, shoring up stock markets, but keeping a lid on the dollar.

Now that a fair degree of clarity has been provided, investors have begun to move on -- strong U.S. economic data on Tuesday helped Wall Street enjoy a solid session and that has fed through into Wednesday's trading in Europe and Asia.

"Investor sentiment has received a big boost from the strong figures out of the U.S.," said Craig Erlam, market analyst at Alpari.

In Europe, the FTSE 100 index of leading British shares was up 1.1 percent at 6,166 while Germany's DAX rose 1.6 percent to 7,933. The CAC-40 in France was 1.7 percent higher at 3,712.

Wall Street was poised for a solid opening, with Dow futures up 0.4 percent and the broader S&P 500 futures 0.5 percent higher.

Despite signs that the recent correction in stock markets may have stabilized, investors remain cautious.

"It still feels as if markets are simply looking to catch their breath after all the excitement of the past week, and so it is perhaps unwise to suggest that two days of positive trading make a trend," said Chris Beauchamp, market analyst at IG.

Later, the focus will be on the final estimate of U.S. economic growth in the first quarter of the year. Few economists expect any sizable revision to the previous 2.4 percent annualized rate.

Elsewhere, gold was in focus, as it fell over $50, or 3.9 percent, to $1,225. Gold has recently had a bad time on a combination of factors, not least because it is priced in dollars. The dollar has been rallying hard as the prospect of tighter Fed policy has lent support. On Wednesday, the euro was 0.3 percent lower at $1.3030.

"A combination of dollar strength, economic progress and a rerating to the market's expectations of central bank asset purchases are crushing prices," said David White, a trader at Spreadex.

The oil price has also suffered from the appreciating dollar. The benchmark New York rate was down 53 cents at $94.79 a barrel. Later the focus will on the latest U.S. government report on energy supplies.

Earlier, the mood in Asia was calmer as traders digested comments from the People's Bank of China that it would act to keep credit markets functioning, if needed.

China's central bank caused a global rout in markets on Monday after it moved to curb so-called shadow banking -- unregulated lending to companies starved of credit by traditional banks. Investors worried that would cause an increase in borrowing rates for companies, hurting business.

Mainland Chinese shares were mixed after enduring sharp losses earlier this week. The Shanghai Composite Index fell 0.4 percent to 1,951.50. But the smaller Shenzhen Composite Index jumped 2.5 percent to 901.72. In Hong Kong, the Hang Seng surged 2.4 percent to 20,338.55.

Elsewhere, Japan's Nikkei 225 fell 1 percent to close at 12,834.01 as the yen recovered some of its recent losses against the dollar, which was trading 0.6 percent lower at $97.53 yen.

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