By Saqib Iqbal Ahmed
NEW YORK (Reuters) - An index of world stocks rose for the third straight session on Tuesday, lifted by hopes that the United States and China would strike a deal to end their months-long trade war that has hurt sentiment in financial markets.
Increased risk appetite helped lift U.S. Treasury yields, while the dollar, which hit an 11-week low on Monday, rebounded as the euro weakened on concerns about a slowdown in the euro zone economy.
Tuesday's advance for stocks added to gains logged over the past two sessions following last week's strong U.S. employment report and comments from the Federal Reserve chief that calmed worries that interest rate hikes would hurt growth.
Trade and concerns over slowing economic growth triggered a selloff at the end of 2018 that culminated in Wall Street posting its worst monthly performance in about a decade in December, driving down earnings estimate and stock valuations.
On Tuesday, MSCI's world equity index, which tracks shares in 47 countries, rose 0.48 percent to a more than three-week high.
The United States and China will continue trade talks in Beijing for an unscheduled third day, a member of the U.S. delegation said on Tuesday.
The meetings this week are the first face-to-face talks since U.S. President Donald Trump and Chinese President Xi Jinping agreed in December to a 90-day truce in their trade war.
Trump, in a post on Twitter on Tuesday, reiterated his recent statement that the talks with China were going well but gave no details.
"With the U.S. and China in talks to de-escalate their trade conflict, the central bank showing a willingness to slow its tightening cycle and the economy still performing well, the markets may be looking a little more attractive," Craig Erlam, senior market analyst at Oanda in London, wrote in a note.
On Wall Street, the Dow Jones Industrial Average rose 203.87 points, or 0.87 percent, to 23,735.22, the S&P 500 gained 15.45 points, or 0.61 percent, to 2,565.14 and the Nasdaq Composite added 42.77 points, or 0.63 percent, to 6,866.24.
European shares hit a three-week high in a broad-based rebound on hopes of a possible trade deal between China and the United States. The pan-European STOXX 600 rose 0.87 percent.
U.S. Treasury yields rose for a third day, in line with higher U.S. stocks, on improved risk appetite, while the Treasury Department also prepared to sell new supply.
Benchmark 10-year notes fell 7/32 in price on Tuesday to yield 2.705 percent, up from 2.682 percent on Monday.
The dollar rose against the euro as investors focused on the risk of a euro zone recession after data showed more signs of slowing in the region. The euro was 0.27 lower against the greenback.
"The euro had its upturn halted by German data showing the third decline in as many months in a gauge of factory growth," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The improved appetite for risk and the stronger dollar weighed on gold prices. Spot gold slipped 0.35 percent to $1,284.1 per ounce.
Oil prices extended gains, supported by hopes that the U.S.-China trade talks might defuse the trade dispute, while OPEC-led supply cuts also tightened markets.
Brent crude futures were up $1.29, or 2.25 percent, to $58.62 per barrel. U.S. West Texas Intermediate (WTI) crude oil futures climbed $1.2, or 2.47 percent, to $49.72 per barrel.
(Reporting by Saqib Iqbal Ahmed; Additional reporting by Gertrude Chavez-Dreyfuss in New York and Sruthi Shankar in Bangalore; Editing by Dan Grebler)
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