GLOBAL MARKETS-Stocks rise on German backing for ECB bond action

* Merkel's support for ECB action boosts investor sentiment
* European shares hit 13-month high, U.S. rallies
* Dollar gains vs euro, bond yields up

By Herbert Lash
NEW YORK, Aug 17 (Reuters) - Global shares and the dollar
advanced o n F riday as apparent support from German Chancellor
Angela Merkel for European Central Bank intervention to calm the
euro zone's debt troubles lifted investor sentiment for a second
day.
A record high for Apple Inc shares boosted U.S.
stocks, and traders eyed a breakout to a new four-year peak,
just half a percentage point away on the benchmark S&P 500.
The CBOE VIX volatility index, seen as a gauge of
investor angst on Wall Street, plumbed a five-year low in a
probable sign that investors see little risk on the horizon.
A key European index hit a 13-month high on speculation euro
zone policymakers might be closer to resolving their differences
and working closely to tackle the more than two-year-old debt
crisis.
In another indication of changing perceptions in Europe, a
growing number of economists have concluded that Greece's fate
lies inside the euro zone rather than outside, as previously
thought, according to a Reuters poll.
Merkel voiced support for ECB President Mario Draghi's
crisis-fighting strategy on Thursday and urged her European
partners to move swiftly toward a closer integration of fiscal
policies, saying time was running short.
Her comments, made in Ottawa, came just before markets
closed in Europe on Thursday, and provided an extra boost on
Friday.
"It's all about Europe and Merkel's comments coming out,
which appeared to support Draghi," said Paul Mendelsohn, chief
investment strategist at Windham Financial Services in
Charlotte, Vermont. "Unless the German constitutional court does
something outrageous, we may be moving in the right direction
here - at least in the short term."
The court is expected to deliver a ruling on Sept. 12 on the
euro zone's permanent rescue fund, before which Berlin cannot
ratify the treaty on it.
European shares notched their best weekly run in seven years
on Friday.
In the United States, the broad S&P 500 was steady after
posting its biggest gain in two weeks on Thursday, buoyed by
Merkel's comments and as economic data just beat economists'
expectations. A gauge of U.S. consumer sentiment rose to its
highest level since May.
The Dow Jones industrial average was up 15.80 points,
or 0.12 percent, at 13,265.91. The Standard & Poor's 500 Index
was up 1.29 points, or 0.09 percent, at 1,416.80. The
Nasdaq Composite Index was up 10.70 points, or 0.35
percent, at 3,073.09.
The FTSEurofirst 300 index closed up 0.5 percent at
1,110.16. Benchmark indexes of Spain and Italy, the two
countries at the top of investors' worries over the debt crisis,
led regional gains, with Spain's Ibex 35 rising 1.9
percent and Italy's FTSE MIB rising 1.3 percent.
World stocks as measured by MSCI's all-country world equity
index rose 0.1 percent at 325.59.
The euro extended losses versus the dollar after the Thomson
Reuters/University of Michigan consumer sentiment survey rose to
its highest level in three months in early August as sales at
retailers and low mortgage rates spurred Americans to boost
their buying plans.
The euro fell below $1.23 to hit a global session
low of $1.2287. It last traded at $1.2321, down 0.3 percent on
the day, according to Reuters data.
The dollar hit its highest against the yen since mid-July at
79.57 yen and last traded at 79.54, up 0.3 percent on the
day.
"Consumers are feeling a little better about the current
economy, though a little more concerned about the outlook.
Current conditions are at the highest level in about three
years. That's encouraging," said Gary Thayer, chief macro
strategist at Wells Fargo Advisors in St. Louis.
Yields on U.S. Treasuries edged down from three-month highs
but remained at the upper end of a recent trading range as
investors lowered bets the Federal Reserve will launch a new
bond purchase program when it meets next month.
The benchmark 10-year U.S. Treasury note was up
5/32 in price to yield 1.8157 percent.
Brent crude oil fell below $114 a barrel after the United
States said it was considering the possible release of oil
reserves to damp down prices and Israel's president spoke out
against a lone Israeli attack on Iran.
Brent crude futures for October delivery fell more than 1
percent on talk of possible releases of U.S. strategic petroleum
reserves and expectations that North Sea output will rebound
after September production is curbed by maintenance.
Brent crude fell $1.56 to settle at $113.71 a
barrel. For the week, Brent rose 76 cents, its third weekly
gain.
U.S. crude oil settled up 41 cents at $96.01 a
barrel.