Global Markets: Sterling falls on new Brexit fears, stocks edge higher

The dollar rose on Tuesday amid concerns about Britain's setting a hard deadline to reach a new trade deal with the European Union, while global equity markets gained, lifted by a resurgent US housing market that bodes well for the economy.

European stocks fell from record highs and sterling dropped more than 1% as reports that British Prime Minister Boris Johnson was set to put a no-deal exit from the EU back on the table.

Johnson will use his control of parliament after last week's resounding election victory to outlaw any extension of the Brexit transition period beyond 2020, a bold move that spooked financial markets.

The pound traded at $1.3135, down 1.46% on the day, while a profit warning from consumer goods giant Unilever sent its shares down more than 7% and helped push the broader European STOXX 600 index (STOXX) down 0.72%.

US-China trade optimism and reassuring Chinese economic data had driven Asian and emerging market stocks to 18-month highs overnight, but stocks tumbled in Europe when markets in London, Frankfurt and Paris opened.

The resurgence of uncertainty over Britain's departure from the EU on Jan. 31 failed to carry through to Wall Street. Data showing US homebuilding increased more than expected in November and permits for future home construction surged to a 12-1/2-year high lifted US stocks, albeit modestly.

Evidence of a global economic revival is becoming increasingly clear, said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis, citing US, Chinese and European data.

"The financial markets are just being bombarded by great economic reports this week," he said.

Paulsen pointed to US manufacturing output rebounding more than expected in November, rising 1.1%, while industrial output also rose 1.1% last month, according to the Federal Reserve.

The Dow Jones Industrial Average rose 51.63 points, or 0.18%, to 28,287.52. The S&P 500 gained 2.24 points, or 0.07%, to 3,193.69 and the Nasdaq Composite dropped 1.35 points, or 0.02%, to 8,812.88.

Stock markets in Shanghai, Hong Kong and Seoul all gained more than 1% and MSCI's all-country world index set a record high, putting its gains for 2019 at almost 23%, its best year in a decade and the fourth-best year ever.

The Australian dollar also came under pressure after the minutes of this month's Reserve Bank of Australia meeting suggested the central bank might cut interest rates again when it next meets in February.

The RBA has already cut three times since June, taking rates to a record low of 0.75%.

The dollar index (DXY) rose 0.13%, with the euro up 0.08% to $1.1151. The Japanese yen weakened 0.02% versus the greenback at 109.54 per dollar.

Oil rose further above $65 a barrel, supported by hopes that the US-China trade deal will bolster oil demand in 2020 and the prospect of lower US crude supplies.

Brent crude, the global benchmark, rose 59 cents to $65.93 a barrel, while US West Texas Intermediate crude added 64 cents to $60.85 a barrel.

Palladium, which is widely used in catalytic converters for car and truck exhausts, remained a focus, though, as it sped toward $2,000 an ounce for the first time.

Gold prices were steady.

Spot gold rose 0.02% to $1,476.24 an ounce.

Benchmark 10-year notes last rose 3/32 in price to yield 1.8801%.