Stocks rose Wednesday despite worries over a nuclear reactor in Japan and Libya's violent conflict, while the euro hit a 15-month high against the dollar on expectations the European Central Bank will hike interest rates this week.
After focusing for weeks on security issues, largely in Japan and the Arab world, investors are turning their attention back to fundamental economic developments this week.
"It seems that the geopolitical concerns that have haunted markets recently are easing," said Yusuf Heusen, a senior sales trader at IG Index.
Interest rates considerations are taking center stage, with many of the world's central banks issuing policy statements this week.
Already the People's Bank of China has raised its main interest rate for the fourth time since October as it tries to keep a lid on rising inflationary pressures.
The European Central Bank is poised to make its first hike for nearly three years on Thursday as it too frets about inflation. A quarter percentage point increase in the main rate to 1.25 percent is fully priced in by the markets so investors will be more interested in what the central bank's president Jean-Claude Trichet says in his press conference.
The markets think he will continue to sound a relatively hawkish tone and that has helped the euro clamber above $1.43 for the first time since last May. By late morning London time, the euro was up 0.6 percent on the day at $1.4306, after trading as high as $1.4319, its strongest level since Jan. 19, 2010. Meanwhile, the euro was at an 11-month high of 121.77 yen, up 0.7 percent on the day.
Jane Foley, senior currency strategist at Rabobank International, thinks the markets may be getting ahead of themselves in expecting interest rate hikes in Europe and that as a result the euro may struggle to push much higher.
"We see risk that the ECB could signal that they may not hike rates as aggressively as the market is prepared for this year," Foley said. "This would likely take some of the wind out of the euro's sails."
The euro's ascent since it hit a multi-year low around $1.18 last summer has taken many currency traders by surprise, not least because Europe's debt crisis continues to brew, with Portugal widely-tipped to become the third euro country following Greece and Ireland to get an international bailout.
Though Portugal managed to raise about euro1 billion ($1.4 billion) in a Treasury bill sale Wednesday, it had to pay substantially more to get the cash than it had to at previous auctions.
For now, interest rate policy remains the key to the euro's gains, especially as the ECB's peers, such as the U.S. Federal Reserve and the Bank of Japan are not expected to start raising borrowing costs just yet, though the Bank of England could well be tightening policy in the next month or two.
However, analysts said the Fed is showing signs that it's ready to change course after it brings its current $600 billion monetary stimulus to an end in June. Though it may not raise interest rates this year, it seems Fed policymakers are preparing to begin withdrawing some of the extraordinary measures implemented during the financial crisis.
The minutes to the last Fed rate-setting meeting, published Tuesday, indicated that the "normalization" process will begin over the coming months, and that process will eventually lead to an increase in the main Fed funds rate from the current 0-0.25 percent range.
The reaction to the Fed minutes has been fairly muted in stock markets.
In Europe, the FTSE 100 index of leading British shares was up 0.4 percent at 6,032 while Germany's DAX rose 0.6 percent to 7,222. The CAC-40 in France was 0.1 percent higher at 4,044.
Wall Street was poised for modest gains at the open _ Dow futures were up 35 points at 12,362 while the broader Standard & Poor's 500 futures rose a little over 4 points to 1,331.
In the oil markets, the apparent stalemate in Libya, which accounts for a little under 2 percent of daily oil production, kept oil prices high. the benchmark rate on the New York Mercantile Exchange was trading 13 cents a barrel higher at a 30-month high of $108.47.
Earlier in Asia, Japan's battered Nikkei 225 closed down 0.3 percent to 9,584.37, while Hong Kong's Hang Seng gained 0.6 percent to 24,285.05 . In China, investors brushed off the previous day's interest rate increase as the Shanghai Composite Index returned from a holiday to close 1.1 percent higher at 3,001.36.
Pamela Sampson in Bangkok contributed to this report.