Major global equity markets have staged an impressive rally today. The Nikkei advanced 4.2% and the large bourses in Europe were up 0.75%-1.5% around midday in London. The rally in share prices saps interest in the fixed-income markets, leaving most bond markets little changed. The dollar is mixed, posting modest upticks against European currencies but slipping against the yen. This environment is conducive to the most serious run at Dow 10,000 that we have seen this week.

There are two general forces at work in Japan. On one hand, foreign investors, underweight Japanese equities, are readjusting their portfolios. Japanese government data show foreigners have been net buyers of Japanese stocks for the last eight weeks. Part of the foreign buying now is feeding on itself insofar as fund managers who are still underweight Japanese stocks may underperform their benchmark indices. Some foreign investors also seem to believe that the long-awaited Japanese recovery is at hand, though disturbingly they seem more optimistic than the government's own cheerleaders.

On the other hand, Japanese corporations are happy to sell to the foreign buyers. These businesses are liquidating some of their equity portfolios to boost profits for the fiscal year-end book-closing. Japanese banks have reportedly begun reducing their equity holdings as well. Regardless of who is doing the buying, the rally in the Nikkei to its best levels since the end of last July will help boost Japanese balance sheets. Yet, having seen March rallies in the Nikkei before, I am skeptical that this strength can be sustained.

The Japanese government itself seems to be divided over when the economic recovery will become evident.

Finance Minister

Miyazawa

suggested that the recovery will be clear by the time Prime Minister

Obuchi

meets

President Clinton

in May. The

Bank of Japan

and the

Economic Planning Agency

seem more skeptical of such an early recovery. Miyazawa did acknowledge intentions of front-loading public works spending into the first half of the new fiscal year that begins April 1. The MOF will also move forward the relaxation of credit conditions for home buyers and small businesses.

Fear of BOJ intervention helped support the dollar above the 117-yen level.

However, the risk of intervention is reduced in the U.S. time horizon. This support area should be expected to break in the U.S. today. Additional support is seen near the 116.50-yen area. The yen's performance against the dollar is increasingly affected by cross-rate developments. In particular, the yen is strengthening against the euro and sterling. These crosses are perceived to be less sensitive to intervention than the dollar-yen.

Also, from a fundamental perspective, those players believing that a Japanese economic recovery is at hand often see Europe as the economic laggard. Initial support for the euro comes in near 128 yen, but it will requires a break of this week's low near 127.15 yen to signal that the run to retest the year's low of 124.60 has begun in earnest. Sterling also looks vulnerable against the yen. A convincing break of support near 190 yen would send sterling down another 2% initially.

This leaves the dollar in a consolidative mode against the European currencies. For the record, note that since its start at the beginning of this year, the euro has posted a lower close every week. This run is at risk today, as this could mark the first week that the euro posts a higher close. Last week, the euro finished at $1.0905. Currently it is near $1.0950.

European stocks are finishing the week on a strong note, which should entice follow-through buying next week. Ideas that the Asian economies are recovering helped bolster shares of multinational banks and business with exposure in Asia. Double-witching, whereby futures and index options expire, may be adding to the volatility of several bourses today (U.K., Italy, Holland, Spain and Belgium). A close in the

Dax

above 5130 would set the stage for a rally back toward 5300 over the next week or so. France's

CAC

gapped higher today. The gap that runs 4160-4190 is likely to be seen as key support. There is potential for gains toward 4350 over the coming sessions. A similar price objective for the

FTSE

is near 6350.

The two biggest eurozone countries did report stronger-than-expected data today.

Industrial output in France rose 0.6% after a 1.6% drop in December. Led by strong auto production, manufacturing output rose an impressive 1.4% for a year-over-year gain of 3.1% compared to December's 1.5% year-over-year rise. The

Bundesbank

reported construction orders rose 7.8% in January from year ago levels.

Still, the Bundesbank's monthly report out earlier this week warned that private-sector construction sector was still deteriorating. Construction orders fell 3.5% on a quarter-over-quarter basis in the fourth quarter. A modest bounce in the first quarter apparently will not negate the Bundesbank's concern. Eastern states continued to report their construction orders are falling. In January they fell 2.1%. Western states recorded a 10.7% rise.

The discrepancy between the economic performance of the western and eastern states, not only on this indicator but on most macroeconomic measures, raises the issues of whether the convergence process has stalled. Note too that earlier today the upper house of the German Parliament approved the government's controversial tax plans. These plans include reducing the average family tax burden by 2,500 marks by the year 2002. The measures also reduce the tax burden on small and midsize German businesses. The closing of loopholes for large businesses is expected to raise 10 billion marks starting next year.

Marc Chandler is an independent global markets strategist who writes daily for TheStreet.com. At the time of publication, he held no positions in the currencies or instruments discussed in this column, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

commentarymail@thestreet.com.