Global equity markets rebounded on Tuesday on signs of fresh action to turn the tide of Europe's debilitating debt crisis, but bond prices held on to slim gains on concerns about Spain's banking system and its fast-deteriorating public finances.
Wall Street opened higher and European stocks extended their gains, with Spanish stocks trimming heavy losses, on mounting hopes the European Central Bank will help ailing euro zone banks, traders said.
In another encouraging sign, European Commission President Jose Manuel Barroso said euro zone countries should come up with a timetable to reach full economic union, to reassure investors about the future of the single currency bloc.
The FTSEurofirst 300 rose 0.7% at 991.25, and MSCI's all-country world equity index rose 0.9% to 303.59. Spain's IBEX was down 1.8%, paring a full%age point of losses.
U.S. stocks rose on hopes China may unleash more spending measures to stem a slower pace of economic growth, while Greek election polls pointed to support for pro-bailout parties.
The official Shanghai Securities News, citing unidentified sources, reported that China's biggest banks appear to have accelerated lending as Beijing starts to fast-track its approval of infrastructure projects in an effort to spur sagging growth.
Investors were also encouraged by weekend polls in Greece that showed the conservative New Democracy party, which backs the country's international bailout, has a lead over the leftist SYRIZA party, which opposes it ahead of a June 17 election.
"The overall sense of things is that we are doing OK as long as Europe doesn't fall apart," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.
"China is supportive, the consumer sentiment numbers from Friday were pretty good."
Markets barely reacted after a private sector report showed U.S. consumer confidence unexpectedly cooled in May, falling to the lowest level in four months, as Americans became more pessimistic about the job market and economic outlook.
The Dow Jones industrial average was up 110.57 points, or 0.89%, at 12,565.40. The Standard & Poor's 500 Index was up 11.28 points, or 0.86%, at 1,329.10. The Nasdaq Composite Index was up 21.94 points, or 0.77%, at 2,859.47.
U.S. government debt prices rose and the yield on Germany's 10-year bond hit a fresh record low as doubts grew over Spain's plan to recapitalise its banks and obtain finance for its struggling regional governments.
The benchmark 10-year U.S. Treasury note was up 3/32 in price to yield 1.74%. Benchmark 10-year German Bund yields touched a new low of 1.347%, but later trimmed gains to trade slightly down at 1.365%.
The June Bund futures contract also hit a record high of 144.58, but later traded mostly flat.
The euro traded down about 0.1% at $1.2530. The U.S. dollar index was down 0.18% at 82.253.
Crude oil fell towards $106 a barrel but later rebounded.
Brent crude for July delivery rose 62 cents to $107.73 per barrel.
U.S. light sweet crude oil rose 71 cents to $91.57 a barrel.
