World shares held near three-month highs and the euro gained on Tuesday as investors drew encouragement from signs that Europe is edging toward resolving its debt crisis even as the economic impact worsens.
Global markets have enjoyed a strong run this week after the European Central Bank promised to buy bonds to ease the pressure on Spain and Italy, albeit under strict conditions that have yet to be fully worked out.
Investors are also watching to see if the Federal Reserve will take any fresh measures to bolster the U.S. economy. Boston Federal Reserve Bank President Eric Rosengren on Tuesday repeated his call for the central bank to expand monetary policy, saying the economy is only treading water and inflation is not a problem.
Many analysts expect the Fed could launch a third round of bond buying, known as quantitative easing, when it next meets in mid-September. But Dallas Federal Reserve President Richard Fisher told Reuters that taking new steps so close to November's presidential election would be a mistake.
U.S. stocks opened higher with the S&P 500 hitting the psychologically important 1,400 level for the first time since early May.
"Hopes of action in Europe are certainly still persistent," said Keith Bowman, equity analyst at Hargreaves Lansdown. "There is still an element of relief coming through from the U.S. employment figures," he added, referring to Friday's better-than-expected jobs data.
Brent crude futures stayed above $110 a barrel on supply worries with North Sea production due to hit a record low in September.
The cautious hopes that Europe's three-year crisis was edging toward a solution lifted the MSCI world equity index 0.5 percent, near its highs of May this year.
The Dow Jones industrial average gained 53.66 points, or 0.41 percent, to 13,171.17. The Standard & Poor's 500 Index rose 7.25 points, or 0.52 percent, to 1,401.48. The Nasdaq Composite Index added 13.93 points, or 0.47 percent, to 3,003.84.
Equities markets have enjoyed renewed demand from investors over the past three months as high-rated government bond returns have fallen sharply due to demand from investors seeking safety from the troubles in Europe, increasing the relative attractiveness of blue-chip stocks.
European shares had a choppier day after it emerged that the powerhouse German economy had taken a bigger hit than expected in June due to weakness across the euro zone.
German industrial orders fell 1.7 percent on the month, after contracts from the euro zone fell by 4.9 percent.
Data also showed Italy's recession extending into a fourth consecutive quarter as gross domestic product fell 2.5 percent year-on-year in the three months to the end of June.
"We believe Italy faces another two quarters of negative GDP growth this year," said BNP Paribas economist Catherine Colebrook. "There is little sign as yet of light at the end of the tunnel."
The FTSEurofirst 300 index of top European companies rose 0.5 percent, while the Euro STOXX 50, the index of blue chip euro zone stocks, was up 1.5 percent.
SKEPTICS REMAIN
A sharp drop in shares of Standard Chartered Plc
Standard Chartered plummeted more than 18 percent after the New York State Department of Financial Services said the British-based lender hid $250 billion in transactions tied to Iran.
The euro was still basking in the glow of ECB President Mario Draghi's promise that the central bank was "ready to do whatever it takes to preserve the euro", and the expectations it would intervene to help Spain and Italy.
In early New York trading, the euro climbed 0.2 percent to $1.2424. It hit a one-month high of $1.2443 on Monday before paring gains.
However, investors remain cautious about the next steps, as ECB action can be triggered only when a country decides its finances are in such bad shape that it needs a bailout, which could arouse new fears about the whole region.
"Skeptics remain and the ECB will have to replace rhetoric with action sooner than later for this upward move to gain any momentum,' said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey.
"There are still people predicting the $1.2000 level in the euro by year end."
The ECB plans to resume bond buying - possibly as soon as September - which will target shorter dated sovereign debt and aim to complement the combined firepower of the region's two bailout funds while keeping the pressure on governments to reform.
But the euro zone's new permanent bailout fund has yet to be formally approved by paymaster Germany and rules governing any ECB bond buying still have to be agreed by internal committees at the central bank.
Oil prices were enjoying good gains on the ECB hopes along with supply worries stemming from North Sea maintenance, Middle East tensions and the hurricane season in the Gulf of Mexico, which could disrupt oil and gas production.
Brent crude for September delivery rose $1.07 to $110.62 a barrel, climbing above $110 a barrel for the first time since mid May. U.S. crude firmed by 57 cents to $92.77.
