By Lewis Krauskopf
NEW YORK (Reuters) - World stocks raced to a fresh two-month high on Tuesday to keep up their fast start to 2019 while the U.S. dollar strengthened for a fourth straight session as investors looked toward an annual address by the U.S. president later in the day.
With European shares rising sharply, MSCI's gauge of stocks across the globe gained 0.44 percent, increasing for a sixth straight session as it hit a two-month high. Wall Street's main indexes were modestly higher in afternoon trade, paring stronger initial gains.
President Donald Trump was due to give his State of the Union speech at 2100 ET (0200 GMT), with investors awaiting indications of progress in U.S.-China trade talks and watching for signs of tensions with Democrats following a 35-day partial federal government shutdown.
The Federal Reserve's dovish recent statement on interest rate policy, along with optimism over U.S.-China tensions, has fueled recent risk appetite, even as estimates for U.S. corporate earnings have been falling.
"Despite the State of the Union tonight, investors seem increasingly certain that we are going to avoid any escalation of the trade tensions with China and avoid another government shutdown," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab in Boston.
"Investors are viewing policy considerations offsetting falling earnings expectations," Kleintop said.
On Wall Street, the Dow Jones Industrial Average rose 99.25 points, or 0.39 percent, to 25,338.62, the S&P 500 gained 2.88 points, or 0.11 percent, to 2,727.75 and the Nasdaq Composite added 24.91 points, or 0.34 percent, to 7,372.44.
Shares of Estee Lauder Cos and Ralph Lauren reacted favorably to the companies' respective quarterly reports.
Fourth-quarter earnings for companies on the benchmark S&P 500 index were on track to have climbed 15.8 percent, but profit in the first quarter is now expected to rise by only 0.4 percent, according to IBES data from Refinitiv.
The pan-European STOXX 600 index added 1.41 percent, helped by a recovery in banks and a solid update from BP.
The dollar index, which measures the greenback against a basket of currencies, rose 0.17 percent, up for a fourth straight session, with the euro down 0.17 percent to $1.1415.
Continued recovery in investors' appetite for risk taking exerted pressure on safe-haven currencies, dragging the Swiss franc to an 11-week low against the dollar.
U.S. Treasury yields fell as investors started to price in the Fed's dovish interest rate outlook amid an uncertain global economic outlook.
"Yields are consolidating around levels that are more consistent with the new position at the Fed which is ... it is effectively on hold at least in the next six months," said John Herrmann, rates strategist at MUFG Securities in New York.
Benchmark U.S. 10-year notes last rose 7/32 in price to yield 2.6983 percent, from 2.724 percent late Monday.
Oil prices pulled back from two-month highs after weak U.S. factory orders data rekindled economic slowdown worries.
U.S. crude fell 1.43 percent to $53.78 per barrel and Brent was last at $62.10, down 0.66 percent.
(Additional reporting by Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed in New York, Marc Jones in London; Editing by Bernadette Baum)
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