Stock markets on track for best week in 6 years

LONDON (Reuters) - World shares were set to post their best week of gains in six years on Friday after two consecutive weeks spent in the red, shrugging off a rise in global borrowing costs while the dollar hit its lowest level since 2014.

The MSCI world index of stocks, which tracks shares in 47 countries, was up 0.4 percent after European bourses opened.

After suffering its biggest weekly drop since August 2015 last week, this week’s recovery puts the index on track for its best weekly showing since early December 2011.

The index has now reclaimed more than half of the 10.7 percent plunge from a record intraday high on Jan. 29 to a four-month intraday low a week ago.

Investors have been puzzled at this week’s quick rebound in stock markets, which has also coincided with a rise in bond yields on evidence that inflation is starting to creep up globally.

The argument most commonly offered by economists has been that historically, it’s not unusual for stocks and bond market borrowing costs to rise in tandem with a rapidly expanding economy.

“For me it’s really a question of maybe. Markets are taking a look at the inflationary outlook and saying OK, maybe rates are going up and maybe the economy will compensate for that,” said Michael Hewson, chief markets analyst at CMC Markets.

“That might change if we move to 3 percent on the 10-year (Treasury).”

The global rise in borrowing costs has been led by the U.S. 10-year Treasury, which hit a four-year high of 2.944 percent this week. It last stood at 2.8932 percent.