Global stocks rally as China fears dwindle, oil prices steady

US and European stock markets climb over 1%

US and European stock markets climbed 1% or more on Tuesday, reversing five days of declines, as investors looked past China's equities sell-off and took buying cues from earnings and mergers news.

Prices of safe-haven government bonds eased, while the dollar rallied on growing expectations the Federal Reserve, in a policy statement due on Wednesday, could take a hawkish bias towards raising interest rates. Oil prices recovered from six-month lows and steadied on hopes US crude stockpiles were shrinking.

Wall Street's Dow Jones industrial average finished ahead 189.68 points, or 1.09%, at 17,630.27, the S&P 500 rose 25.61 points, or 1.24%, to 2,093.25 and the Nasdaq Composite added 49.43 points, or 0.98%, finishing at 5,089.21, according to preliminary data.

United Parcel Service shares rose 4.8% and Ford gained 2% after each reported higher-than-expected profits. The S&P energy sector index added 3%.

"The S&P has had five down days in a row and a lot of people are starting to nibble," said Michael Matousek, head trader at US Global Investors Inc in San Antonio.

Merger news helped lift European stocks, with the FTSEuroFirst 300 index of leading European shares closing up 1.1% at just under 1,546 points.

RSA Insurance Group rose 18% after Zurich Insurance said it was considering a bid for the British group. Shares of Kering surged 5.6% after Gucci, the flagship brand of the French group, reported a 4.6% increase in underlying second-quarter sales.

The main China indexes fell again, although by nowhere near as much as Monday's 8.5%. The Shanghai market benchmark closed 1.7% lower.

The Fed kicked off a two-day policy meeting. Since no immediate change in interest rates is expected, attention centred on whether Fed Chair Janet Yellen would signal September or December as the most likely date for a rate increase, the first since 2006.

US stock market sentiment reflected expectations the Fed would wait until December, Matousek said.

Oil prices steadied, with US crude rising more than 1% as bets for a drop in US crude stockpiles offset worries about a global supply glut and China's market meltdown.

Brent futures settled down 17 cents, or 0.3%, at $53.30 a barrel. They earlier fell to $52.28, the lowest since early February.

US crude futures settled up 59 cents, or 1.2%, at $47.98 a barrel. They rose more than $1 at the session high after touching their lowest since March at $46.68.

In currency markets, the dollar rose against some major counterparts, including the euro and yen, as traders bet that the first US rate increase in almost a decade is still likely to come in September.

The euro fell 0.4% to $1.1045 , after touching a two-week high of $1.1129 on Monday. The dollar was up 0.30% against the yen at 123.57 yen .

Bond yields edged higher, with the 10-year US Treasury off 7/32 in price and yielding 2.2553% . The comparable UK yield rose a basis point, while the yield on the 10-year German Bund was also up 1 basis point.