GLOBAL MARKETS-U.S. relief, China growth leaves shares at 5-yr high
* Focus turns to Fed stimulus prospects after government shutdown
* China Q3 growth quickens to 7.8 pct yr/yr
* World shares at 5-year high as European, Asian stocks add to gains
* Euro hits 8-1/2-month high vs dollar
* Gold heads for best week in two months
LONDON, Oct 18 (Reuters) - Expectations the Federal Reserve will keep its stimulus in place for longer following the confidence-sapping U.S. fiscal impasse pushed world shares to a five-year high and the dollar to an eight-month low on Friday. An acceleration of China's giant economy provided a further boost for stock markets, as well as growth-linked commodities such as oil and copper, as the prospect of an extended spell of super-easy money and improving growth buoyed investors. European shares opened 0.3 percent, with broadly even gains for most of the region's major bourses leaving them on course for a weekly gain of 1.75 percent and hovering at their highest since mid-2008. It followed a record close for the S&P 500 on Wall Street and solid gains across most of Asia overnight. As the U.S. debt drama faded, speculation grew over whether the likely hit to growth from the recent wrangling would see the Federal Reserve further delay cutting back its stimulus - supporting riskier assets but weighing on the dollar. "The debate on the timing of QE tapering by the Fed is quickly moving to whether it will be Q1 2014 or Q2," said Derek Halpenny, European head of global markets research for Bank of Tokyo-Mitsubishi. "The dollar has been left vulnerable by this uncertainty especially in circumstances of growth stabilising in China." The knock-on effect for Europe was a stronger euro and pound. The euro zone's shared currency hit an 8-1/2 month high of $1.3690 in early trading as its recent strong run following signs of a pick-up in the bloc continued.
CHINA BULLS SHOP Investors were relieved by data showing China's economy grew 7.8 percent in the third quarter, its fastest pace this year and in line with expectations, as firmer foreign and domestic demand lifted factory production and retail sales. China's CSI300 index climbed 0.7 percent, while Australian shares jumped to their highest level since June 2008. Australian exports are closely linked to China's economic fortunes. "The Q3 GDP figure is in line with market expectations but the uncertainty is whether the current recovery is sustainable," said Shen Jianguang, chief China economist with Mizuho Securities in Hong Kong. After Thursday's record close, U.S. S&P E-mini futures pointed to further gains of around 0.2 percent when Wall Street opens later in the day, though investors are likely to retain some caution following Wednesday's last-minute debt deal. While it pulled the world's largest economy back from the brink of an historic default, it only funds the government until Jan. 15 and raises the borrowing limit through to Feb. 7, meaning another political showdown could be on cards. Markets are bracing for a deluge of delayed U.S. data that will pour out over the next week. A simple estimate suggested the direct and indirect impact of this month's shutdown would weigh on annualised fourth-quarter gross domestic product growth by 0.4 percentage point, analysts at Morgan Stanley wrote in a note to clients. Following hefty gains this week, German Bunds were steady in early trading, while in the euro zone periphery it was only Portugal that was in the red, along with its main share market, as its debt concerns continued. Benchmark 10-year U.S. Treasuries were trading with a yield of 2.5667 percent by 0745 GMT, a two-week low. Yields move inversely to prices. In commodity markets, China's stronger growth helped copper climb 0.6 percent to 7,273 a tonne and Brent oil futures to hold above $109 a barrel after a build-up of crude stocks in the United States pushed oil prices down overnight. Meanwhile, gold took a breather after rallying almost 3 percent overnight - its biggest one-day rise in a month - as the dollar weakened. It was steady at about $1,316 an ounce and not far off a more-than one-week high reached on Thursday.