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(Updates prices)
By Naomi Rovnick and Koh Gui Qing
NEW YORK/LONDON June 9 (Reuters) - U.S. shares struck new highs for the year on Friday and helped lift world stocks to a 13-month peak, as rising bets that the Federal Reserve will skip a rate hike next week overshadowed worries about U.S. markets being drained of cash.
Helped by a surge in Tesla Inc, which jumped as much as 5.7%, the S&P 500 rose to levels last seen in August before paring gains. It finished higher 0.1%, the best close since Aug. 16. The Nasdaq Composite added 0.13%, and the Dow Jones Industrial Average rose 0.16%.
Over in Europe, the STOXX 600 index lost 0.13%, but MSCI's broadest index of Asia-Pacific shares outside Japan jumped 0.74% overnight. Combined with gains on Wall Street, the MSCI's broadest index of world stocks added 0.18% at a 13-month high. For the week, the index for world stocks might notch a 0.6% rise.
"As of today, the S&P 500 is back in a bull market," said Arthur Hogan, chief market strategist at Briley Wealth, noting that the index finished Thursday with a 20% gain off its recent lows. "The one thing that could tip over the apple cart is an over-aggressive Fed."
Refinitiv data showed the S&P 500 up 20% from its Oct. 12 closing low. The most commonly accepted definition of a bull market is a 20% rise off a low, and a 20% decline from a high for a bear market, but that is open to interpretation.
Traders now lay 73% odds on the Fed keeping rates steady on June 14, in a range of 5%-5.25%, pausing its most aggressive hiking cycle since the 1980s.
Bets for a pause were supported by data on Thursday that showed the number of Americans filing new jobless claims surged to a more than 1 1/2-year high, indicating a loosening labour market that could further quell inflation.
Investors also hope the Fed will pause its rate rise campaign as a quirk of the U.S. debt ceiling negotiations has posed a potential threat to market liquidity.
The U.S. government is expected to rush to sell short-term debt to replenish its Treasury General Account (TGA), potentially at yields so high that banks raise deposit rates to compete for funding, reducing interest in riskier assets like equities.
"We're all worried about liquidity," said Ben Jones, director of macro research at Invesco. The Fed, he added, "still wants to tighten" policy and therefore may allow the TGA rebuild to drain liquidity from markets without stepping in to provide other support tools.
This fear was not dominating trading on Friday, however.