Oil and gold prices eased on Tuesday after recent price spikes related to violence in the Middle East, while the dollar fell against major currencies and stocks were generally higher.
By Jeremy Gaunt, European Investment Correspondent
Wall Street looked set for a positive start.
It was the last trading day of the year for some financial markets. Japan's Nikkei average closed with a 42 percent loss for 2008, the worst in its 58-year history.
"2008 was the year of the serpent, everyone got bitten," said Paul Biddle, a fund manager with Souls Funds Management in Australia.
But investor fears stemming from Israel's bombardment of Gaza appeared to be easing. Demand concerns overwhelmed supply fear on oil markets with crude falling below $40 a barrel to around $39.45.
Oil is heading for a loss of nearly 60 percent in 2008 after reaching an all-time high earlier in the year.
Investors also booked profits in gold after it rallied to an 11-week high on Monday. It was down 0.8 percent at $870 an ounce.
Israel rejected any truce with Hamas Islamists on Tuesday and said it was ready for "long weeks of action" on a fourth day of the fiercest air offensive in the Gaza Strip in decades.
Medical officials put the total Palestinian death toll since Israel launched its offensive on Saturday as Gaza gunmen stepped up rocket fire, at 348 and more than 800 wounded.
END-YEAR RALLY
European stocks opened higher, adding to the previous day's gains as most of the region's bourses entered the last full-day session of a dire year for investors.
The pan-European FTSEurofirst 300 index was up 0.9 percent, but still down more than 45 percent for the year.
"Investors realise that a lot of the bad news is out of the way ... It has been a very difficult year for all parties. (Investors will) be glad to get it out the way and start the new year," said Manoj Ladwa, a derivatives broker at ETX Capital in London.
Japan's Nikkei earlier rose 1.3 percent to 8859.56.
On currency markets, the dollar fell 1 percent against a basket of currencies. The euro gained 1.3 percent to $1.4166 and the dollar fell 0.3 percent to 90.26 Japanese yen.
The euro again flirted with parity against the pound.
Two- and 10-year euro zone government bond yields fell to their lowest level since the introduction of the euro, before recovering.
Two-year yields have fallen 50 percent since January, while 10-year yields are a third lower than at the start of the year as investors sought less risky assets and as interest rates were slashed.
"Despite significant and realistic concerns about supply, whichever way investors look the potent mix of financial sector woes and the macro-economic feedback loop have ensured that bonds remained the default instrument of choice," said Nomura rate strategist Sean Maloney.
Two-year bond yields fell to 1.691 percent, their lowest level since the introduction of the euro in January 1999, but were last at 1.781 percent, up 3 basis points on the day.
(Additional reporting by Rebekah Curtis and Kirsten Donovan; editing by Chris Pizzey)
LONDON (Reuters)