By Caroline Valetkevitch
NEW YORK (Reuters) - The dollar hit is highest against the euro in nearly 10 weeks on Tuesday, while U.S. bond prices dipped as expectations grew that the Federal Reserve could raise interest rates soon.
Surprisingly strong data on U.S. new home sales in April supported the view the economy may be strong enough for the Fed to raise interest rates as early as June.
Last week, the Fed surprised investors when the central bank's meeting minutes opened the door to a rate hike as early as June.
World stock indexes rallied, led by shares of financial companies, which benefit from rising interest rates, as well as technology and other growth-oriented sectors.
The euro was down 0.7 percent against the dollar at $1.1136 and hit its lowest level since March 16. > "A re-pricing of Fed tightening expectations is the principal driver of the U.S. dollar's resurgence," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York. "Markets will wax and wane, but generally speaking, the thrust will be toward dollar gains."
MSCI's all-country world stock index <.MIWD00000PUS> was up 1 percent, while the pan-European FTSEurofirst 300 index <.FTEU3> of leading regional stocks ended up 2.3 percent.
The Dow Jones industrial average <.DJI> was up 246.88 points, or 1.41 percent, to 17,739.81, the S&P 500 <.SPX> had gained 31.39 points, or 1.53 percent, to 2,079.43 and the Nasdaq Composite <.IXIC> had added 99.63 points, or 2.09 percent, to 4,865.42.
While higher borrowing costs can be a negative for the stock market, equity investors may be hopeful about prospects for the broader U.S. economy.
"I think investors are becoming more comfortable with an early rate hike because even if the Fed does raise rates in June, it will remain extremely accommodative," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
In the U.S. Treasury market, the rally in stocks and robust new home sales data weighed on bond prices. The two-year yield touched two-month highs, but prices bounced off session lows after robust demand at a $26 billion note auction.
Benchmark 10-year Treasury notes > were down 5/32 in price for a yield of 1.859 percent, up 2 basis points from Monday.
Investors will watch Fed Chair Janet Yellen's appearance at a panel at Harvard University on Friday, the same day as they take in a revised estimate of U.S. first-quarter growth.
Oil prices gained as investors awaited crude oil inventory data from the United States that was expected to show a shrinking supply overhang.
Brent futures
The strong dollar took a toll on gold, which fell to a four-week low. Spot gold > was down 0.9 percent at $1,236.81 an ounce, off a session low of $1,235.35.
(Additional reporting by Sam Forgione and Saqib Ahmed in New York and Tanya Agrawal; and Marc Jones in London; Editing by Nick Zieminski and David Gregorio)
