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World stocks set to rise steadily, barring U.S. budget blow-up: Reuters poll

By Andy Bruce

LONDON (Reuters) - Steady gains for most of the world's major stock markets have further to run before the year's out, assuming Washington stops its debt ceiling spat spiraling into a financial crisis, a Reuters poll showed.

Japanese stocks, by far the best performing this year of the 20 indexes covered in the poll, will continue to rise strongly from here until 2014.

The survey of over 300 analysts worldwide also showed hobbled Latin American and Chinese markets look set to recoup some of their losses in what has been a fairly mixed year for the world's top stock indexes.

In general, the latest Reuters poll shows that analysts are more optimistic about stocks compared to June but on emerging market equities they are less so.

"The level of the market by itself could be enough to act as a headwind as we try to march higher," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York, referring to U.S. stocks, which look likely to rank as average performers globally from here.

A breakneck rally at the start of the year gave way to angst when the U.S. Federal Reserve hinted it might start pulling back its quantitative easing asset buying, cash that has inflated share prices globally.

When the Fed refrained from doing that last month, surprising most investors and economists, stock markets continued their ascent, which the poll suggested will go on.

But that view hinges on U.S. lawmakers resolving a deadlock that stands in the way of an agreement to raise the country's debt limit before an October 17 deadline.

The impasse drove world shares down for a third day on Wednesday, as the main U.S. fear gauge, the CBOE Volatility Index, hit its highest since June.

Economists polled by Reuters last week put the probability the U.S. government will default at less than 10 percent, although the longer the feud persists, the higher the stakes.

The outlook for 2014 looks cloudier, once the Fed follows through on its plans to start scaling back its stimulus.

Still, Japan's Nikkei <.N225>, which has gained some 33 percent this year alone, looks set to remain at the top of the growth charts among the 20 stock markets covered by the poll.

"Both the economy and corporate earnings are expected to pick up further ... It seems certain that many companies will raise their full-year business outlook when they report their half-year results," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

LATAM LAGGARDS?

Brazil's Bovespa <.BVSP> and Mexico's IPC <.MXX> currently rank as the two worst-performing indexes covered by the poll, respectively 14.2 percent and 8.7 percent in the red.

Still, Brazilian stocks should recoup half these losses by the year-end, while Mexican equities should eke out a small gain of around percent.

Unlike previous Reuters polls, analysts were not particularly optimistic for the longer term, predicting the Bovespa would fall back to 55,500 by mid-2014.

"I'm cautious," said Debora Morsch, a partner with Zenith Asset Management in Porto Alegre, Brazil. "Our economy is still not doing too great, the U.S. is still involved in fights over debt and spending, and that could lead to an even further slowdown in the global economy."

The poll showed Shanghai shares <.SSEC>, down more than 3 percent this year, should recover slightly over the next few months, while India's BSE Sensex <.BSEN> looks set for a better 2014 after a drab performance so far this year.

European and U.S. indexes, which have gained steadily this year, should keep doing so, absent any worst-case scenarios in the U.S. budget fight or flare-up in the euro zone's debt crisis. <.STOXX50E> <.FTSE>

"Performance will be driven by earnings growth and multiple expansion, as confidence in the economic outlook returns, possibly supported by EPS (earnings per share) upgrades in the next 6 months," said Martin Moeller, head of global equity portfolio management at UBP, on the European outlook.

The U.S. S&P 500 <.SPX>, home to many of the world's biggest companies, also looks set to keep up its unspectacular ascent through next year, rising around 11.5 percent between now and the end of 2014.

While the U.S. economy has been faring better than its developed peers in Europe, the fragility of its recovery remains a big reason why there is little prospect of a much stronger rally.

"We've seen nothing but anemic growth, and the question becomes whether the economy will continue to grow without massive stimulus," said Adam Sarhan, chief executive at Sarhan Capital in New York.

Economists polled by Reuters expect the Fed will curtail its stimulus in December, although bets are off if the budget battle escalates further.

(Additional reporting from Rahul Karunakar and reporters in London, Paris, New York, Tokyo, Shanghai, Sydney, Hong Kong, Johannesburg, Frankfurt, Milan, Sao Paulo, Toronto, Seoul, Moscow and Mumbai; Polling by Reuters Polls Bangalore; Editing by Ross Finley, Ron Askew)

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