By Steven Russolillo and Joanne Chiu 

Global stocks rallied as progress with two of the biggest overhangs for investors, trade and Brexit, bolstered risk appetite late in what is already a banner year for markets.

President Trump has agreed to a limited trade agreement with Beijing, The Wall Street Journal reported Thursday. In the U.K., a solid election victory for Prime Minister Boris Johnson's Conservative Party raised hopes for a smooth exit from the European Union.

Japan's Nikkei 225 jumped 2.6% on Friday in Asia trading, putting the benchmark on pace for one of its best days of the year. Hong Kong's Hang Seng Index gained 2%. The Shanghai Composite in China rose 1.2%. Other benchmark indexes in South Korea and Taiwan advanced 1.4% and 0.9%, respectively.

S&P 500 stock futures advanced 0.4%. The Dow Jones Industrial Average and the S&P 500 had both gained nearly 1% on Thursday after Mr. Trump said the U.S. and China were nearing a deal, with the S&P reaching a record closing high.

"The geopolitical risks thought to be strangling world economic growth, incredibly, just in the last 24 hours, seem to be closer to getting resolved in a big, big way," said Chris Rupkey, chief financial economist at MUFG. "The outlook in 2020 looks better than it has in months."

Mr. Rupkey said he expects stocks around the world to keep rallying and bond yields to rise further.

Sterling jumped 2.5% against the dollar, reaching the highest since May 2018. Benchmark 10-year U.S. Treasury yields on Thursday rose by the most in three years on increasing optimism about growth. They rose another 0.01 percentage point to 1.91% in Friday morning trading in Asia.

The WSJ U.S. Dollar Index fell 0.44% to 89.94, the lowest since July. Mansoor Mohi-uddin, senior macro strategist at NatWest Markets, said a U.S.-China trade deal, Britain's possible orderly exit from the EU, and looser monetary policy in the U.S. and Europe together set the stage for a "decent selloff" in the dollar.

To be sure, previous breakthroughs in both trade and Brexit have proven to be false dawns. Trade tensions have dragged on for almost two years, while Britain's divorce from the EU has been bogged down in the country's parliament since the June 2016 referendum.

Still, the elevated political uncertainty, which is also fueled by U.S. impeachment proceedings, hasn't stopped many stock markets from enjoying an exceptional year.

The S&P 500 has rallied 26%, on pace for its best annual performance in six years. The rally has been underpinned by the Federal Reserve, which has cut interest rates three times this year to shore up growth, a reversal after four increases last year. Earlier this week, it kept rates steady and showed no appetite to raise them soon.

The about-face has rippled through global markets. The Stoxx Europe 600 has risen 21% this year, while indexes in mainland China, Japan and Taiwan are up by double-digit percentages. The MSCI All Country World index has risen more than 20%.

Some observers are concerned about how much more markets could rally from here. Eli Lee, head of investment strategy at Bank of Singapore, said investors should expect modest returns in coming years, given already-rich equity valuations. "Although the bull market won't die in 2020, there are good reasons for return expectations to be moderate," he said.

Write to Steven Russolillo at steven.russolillo@wsj.com and Joanne Chiu at joanne.chiu@wsj.com

(END) Dow Jones Newswires

December 13, 2019 01:00 ET (06:00 GMT)

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