By Herbert Lash
NEW YORK (Reuters) - Rising U.S. manufacturing output last month and a surge in euro zone business activity in December lifted global equity markets on Monday, while gains in new orders from purchasing managers in Europe boosted the euro against the dollar.
Brent crude oil rose more than 1 percent on expectations of rising demand from the stronger-than-expected European economic data, while supplies remained cut off from Libya.
American manufacturing output rose 0.6 percent in November, a fourth straight gain, as production increased almost across the board, the latest sign the U.S. economy is gaining steam.
Manufacturing combined with a jump in mining and utilities output to boost industrial production 1.1 percent, the largest increase since November 2012, the Federal Reserve said.
U.S. equities posted their worst week in nearly four months last week, a pullback sparked by concerns the Fed may begin to wind down its stimulus program at a two-day meeting of policymakers that ends on Wednesday.
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"Signs of the recovery are becoming increasing evident, and the taper could actually be seen as a good thing - a sign of economic normalization - should the Fed pull the trigger this week," said Brad McMillan, chief investment officer at Commonwealth Financial Network in Waltham, Massachusetts.
McMillan also said that investor optimism remains high, which plays into the view that the surge in equities is also due to a bounce-back from last week and buying on the dip.
In Europe, Markit's Flash Eurozone Composite Purchasing Managers' Index, a regional gauge of business activity across thousands of companies large and small, rose to 52.1 in December from 51.7 last month. New orders rose for a fifth month, suggesting the recovery should continue into 2014.
European shares rose more than 1 percent, while the Dow and the Nasdaq also rose that much before paring some gains.
"It's the stronger economic data showing that tapering won't have as dramatic an impact on the economy as first thought," said Alan Lancz, president, Alan B. Lancz & Associates Inc, an investment advisory firm in Toledo, Ohio.
The steady spate of strong economic data has helped ease fear in the market that an eventual Fed move to scale back its bond purchases would harm the economic recovery, Lancz said.
MSCI's all-country world stock index rose 0.66 percent, while the FTSEurofirst 300 closed up 1.26 percent at 1,258.31. The euro zone's blue-chip Euro STOXX 50 index jumped 1.95 percent to 2,978.77.
Gains in German blue-chips added the most to the FTSEurofirst, as Germany's benchmark DAX rose 1.7 percent. Germany has led the euro zone recovery this year, with the DAX up 20 percent so far in 2013.
On Wall Street, the Dow Jones industrial average rose 147.70 points, or 0.94 percent, at 15,903.06. The Standard & Poor's 500 Index was up 13.27 points, or 0.75 percent, at 1,788.59. The Nasdaq Composite Index was up 30.50 points, or 0.76 percent, at 4,031.48.
The euro edged higher against the dollar on the euro zone data showing rising business activity, while uncertainty over the Fed's bond-buying kept investors wary of the greenback.
Market participants have started to price in the possibility of a small reduction in the Fed's bond purchases, resulting in a stronger dollar trend last week.
But Vassili Serebriakov, currency strategist at BNP Paribas in New York, said much of the dollar buying had already taken place last week. Fed policymakers meet December 17-18.
"There's no reason to buy the dollar ahead of the Fed decision and so this is just position adjustment," Serebriakov said, adding that BNP expects the Fed to start scaling back its asset purchases in March next year.
The euro rose just shy of $1.38 on Markit's composite eurozone report and on German manufacturing activity, both of which beat forecasts in December. The composite data was the second-highest reading since mid-2011.
The single currency had earlier dipped to around $1.3745 after separate data showed French private-sector activity unexpectedly slowed.
The euro was last at $1.3766, up 0.18 percent. The dollar index fell 0.18 percent to 80.068, while against the yen the greenback fell 0.2 percent to 102.97.
Brent crude oil rose more than 1 percent, boosted by expectations for rising demand from the euro zone economic data, while supplies from Libya remained sharply curtailed.
Brent crude for January rose $1.64 to settle at $110.47 a barrel, while U.S. crude oil for January delivery settled up 88 cents at $97.48 a barrel.
German manufacturing data drove a solid expansion in the private sector of Europe's largest economy.
"What really moved the market was the German manufacturing numbers," said Rich Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.
U.S. government bond prices fell, with the 10-year note 3/32 lower to yield 2.8811 percent.
German Bund futures settled unchanged at 140.22 euros.
(Additional reporting by Marc Jones in London; Editing by Krista Hughes and Dan Grebler)