Stocks rally slightly, oil falls on demand worry

By Herbert Lash

NEW YORK (Reuters) - Global shares eked out gains on Tuesday after blowout results at Goldman Sachs boosted hope corporate earnings for the second quarter will prove strong, but oil prices fell on troubling signs of weak demand.

The yen fell and the U.S. dollar struggled against most major currencies as Goldman's earnings and U.S. retail sales in June surpassed expectations, stoking hopes for economic recovery and reducing flows into the dollar driven by risk aversion.

But traders were cautious before the release of earnings from other U.S. banks this week, while lackluster sentiment data from Germany weighed on the euro.

The 30-year U.S. Treasury bond traded more than two points lower in price as a sell-off in government debt markets deepened on profit-taking from a month long rally.

Profits at Goldman Sachs Group Inc (GS.N) surged 33 percent as trading results nearly doubled, trouncing expectations and putting the bank on pace for windfall bonuses that could draw more unwanted public scrutiny.

But analysts said much of the day's news, including Goldman's profits, was already accounted for after optimism that banks' earnings will be stronger than anticipated lifted the major U.S. stock indexes more than 2.0 percent on Monday.

Investors were also cautious with other major companies set to post results later this week, including Bank of America (BAC.N) and General Electric (GE.N), and as doubts persisted about the economy.

Much of a 0.6 percent gain in U.S. retail sales was driven by higher gas prices, suggesting consumers remained wary of stepping up discretionary spending. Retail sales registered a fourth consecutive monthly decline.

A rebound in sales is considered vital for the U.S. economy to bounce back from recession, as consumer spending accounts for roughly two-thirds of the country's economic activity.

"The consumer remains extremely weak and that's the biggest headwind we face, in terms of the economy picking up steam," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

"As a result, investors face a large amount of uncertainty over the near term as to the next direction for the market."

Intel (INTC.O) is expected after the closing bell on Tuesday.

The Dow Jones industrial average .DJI closed up 27.81 points, or 0.33 percent, at 8,359.49. The Standard & Poor's 500 Index .SPX rose 4.79 points, or 0.53 percent, at 905.84. The Nasdaq Composite Index .IXIC added 6.52 points, or 0.36 percent, at 1,799.73.

Banking shares led European stocks higher, with the FTSEurofirst 300 .FTEU3 index of top European shares closing up 1.2 percent at 840.15 points.

A slight rise in risk appetite supported higher-yielding currencies and those tied to commodities, such as Canada's dollar, which hit a three-week high against the greenback.