LONDON: World stocks edged up from this week's four-month lows in cautious trade ahead of a euro zone monetary policy decision later on Thursday, supported by relative calm in vulnerable emerging markets.
The euro was slightly weaker as some investors bet that the European Central Bank could surprise markets with another interest rate cut to ward off the threat of deflation after last month's unexpectedly soft inflation reading.
The broad consensus is that there will be no change in the bank's record low benchmark rate of 0.25 percent.
"Investors have started to position for either a dovish ECB or ... for some sort of surprise (easing)," said Luca Cazzulani, UniCredit rate strategist in Milan.
The MSCI world equity index rose 0.4 percent, while European stocks followed Asia higher by gaining more than 1 percent. U.S. stock futures were pointing to a firmer start on Wall Street later.
Relative calm in the capital-hungry emerging markets of Turkey, South Africa and India also lifted developing stocks, after a rout that drove safe-haven bids to U.S. Treasuries and the yen.
Emerging stocks <.MSCIEF> rebounded 0.7 percent from this week's five-month lows while the Turkish lira and South African rand held above recent lows.
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The euro was down slightly on the day at $1.3522 and 137.14 yen. The dollar rose 0.1 percent against a basket of major currencies <.DXY>. German bond futures were broadly steady.
The ECB is due to announce its decision at 1245 GMT. Some investors also speculate it could suspend its sterilization program - operations to soak up money brought into circulation by the ECB's crisis-era purchases of euro zone government debt.
At a minimum, investors expect ECB chief Mario Draghi to drop hints of his readiness to ease, which could help counter worries about dwindling stimulus from the Federal Reserve.
"Expectations for more ECB action have definitely been an important driving force for tighter intra-euro (yield) spreads," said Jussi Hiljanen, chief fixed income strategist at SEB in Stockholm.
Investors are looking for Friday's highly anticipated U.S. jobs report to show solid growth after encouraging private sector jobs numbers on Wednesday.
Economists surveyed by Reuters expect Friday's data will show that employers added 185,000 jobs in January.
U.S. crude oil rose 1 percent to $98.421 a barrel.- Reuters
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