By Herbert Lash

By Herbert Lash

NEW YORK (Reuters) - A gauge of global equity markets hit a fresh five-month high on Friday on investor optimism over U.S.-Chinese trade talks and hopes a new Brexit vote next week will prove successful, but the dollar headed to its biggest weekly loss since early December.

Hopes of avoiding a chaotic exit from the European Union lifted stock indexes in Europe to highs last seen in October while substantive progress on U.S.-Sino trade talks as reported by China's state-run news agency also buoyed sentiment.

Prime Minister Theresa May's deputy warned lawmakers that unless they approved her Brexit divorce deal after two crushing defeats, Britain's exit from the EU could face a long delay.

 

The dollar fell broadly, dragged lower by weak U.S. economic data that sent the euro higher and helped gold prices to rebound from below $1,300 an ounce. The pound paused for breath but stayed on course for its biggest weekly gain in seven weeks.

U.S. manufacturing output fell for a second straight month in February and factory activity in New York state was weaker than expected this month, further evidence of a sharp slowdown in economic growth early in the first quarter.

The reports added to recent weak U.S. economic data and underscored the Federal Reserve's "patient" approach toward hiking interest rates, a trend that favors equities, said Rahul Shah, chief executive of Ideal Asset Management.

"Slower growth in the U.S. enables the Fed to be more patient, so that's why you're seeing some dollar weakness," Shah said, adding it makes lower volatility stocks more appealing.

Higher U.S. rates than elsewhere among major economies will draw capital from foreign markets and ultimately put upward pressure on the dollar going forward, Shah said.

"It looks like the U.S. will avoid a recession in 2019, which gives a little bit of a green light to take a little more risk," he said.

MSCI's all-country world index, a gauge of equity performance in 47 countries, gained 0.65 percent while the FTSEurofirst 300 index of leading European shares closed up 0.73 percent as all major bourses in Europe rose.

On Wall Street, the Dow Jones Industrial Average rose 154.04 points, or 0.6 percent, to 25,863.98. The S&P 500 gained 16.55 points, or 0.59 percent, to 2,825.03 and the Nasdaq Composite added 73.85 points, or 0.97 percent, to 7,704.76.

Fed officials are scheduled to meet next week to assess the economy and the course of U.S. monetary policy. While no change in rates is expected officials might take a more cautious view on the global economy after a volatile week in currency markets.

Sterling rose 0.29 percent to $1.3277 and the dollar index fell 0.18 percent. The euro gained 0.12 percent to $1.1316 while the Japanese yen strengthened 0.20 percent versus the greenback at 111.51 per dollar.

Benchmark 10-year and 2-year U.S. Treasury yields fell to their lowest levels since early January, pushed lower by the weak U.S. economic data and the growing perception the Fed will stand pat on raising rates for the rest of the year.

The benchmark 10-year U.S. Treasury note rose 9/32 in price to push yields lower at 2.5979 percent.

U.S. crude futures briefly hit a 2019 high but later retreated along with benchmark Brent oil as worries about the global economy and robust U.S. production put a brake on prices.

West Texas Intermediate (WTI) crude oil futures settled down 9 cents to $58.52 a barrel. Brent crude futures slid 7 cents to settle at $66.16.

U.S. gold futures settled 0.6 percent higher at$1,302.90 an ounce.

(Reporting by Herbert Lash; Editing by Phil Berlowitz)

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