NEW YORK Stocks rose and the euro climbed to a four-month peak against the dollar on Wednesday after Germany's Constitutional Court approved the euro zone's new rescue fund, easing concerns about the region's debt crisis and leaving markets focused on prospective further easing by the U.S. Federal Reserve.
The German court approval also boosted global stocks and cut borrowing costs for Spain and Italy.
"Today's positive ruling from the court solidifies the view that European officials are getting control over the sovereign debt crisis," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
The euro climbed as high as $1.2936, its highest since mid-May. The common currency has risen more than 7 percent since it hit a two-year low of around $1.2040 in July, boosted after the European Central Bank's pledge to do whatever it takes to preserve the euro.
More gains are expected if the U.S. central bank implements further monetary easing on Thursday, since more accommodative U.S. monetary conditions should weaken the dollar against other currencies, including the euro.
U.S. stocks have rallied on expectations the Fed will ease again. In a two-day meeting that concludes on Thursday, the Federal Open Market Committee must decide whether to launch a third round of bond purchases to lower borrowing costs and breathe more life into an economy that is not growing quickly enough to reduce unemployment.
"(It all hinges on) which way the Fed chooses to go," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC.
The Dow Jones industrial average .DJI gained 9.99 points, or 0.07 percent, to 13,333.35. The Standard & Poor's 500 Index .SPX was up 3.00 points, or 0.21 percent, at 1,436.56. The Nasdaq Composite Index .IXIC was up 9.79 points, or 0.32 percent, at 3,114.31.
The S&P 500 index has advanced more than 9 percent since the start of June on hopes for global central bank stimulus.
Another phase of asset purchases by the Fed would likely focus on mortgage-backed securities, strategists said.
With so much expectation built up, action by the Fed that is too cautious would be an unwelcome surprise, they said.
"If the Fed declines to move forward with another round of quantitative easing, support for risk assets may weaken," said Zach Pandl, Columbia Management senior interest rate strategist.
On Wall Street, shares of Facebook Inc (FB.O) jumped 7.2 percent to $20.83 after Chief Executive Mark Zuckerberg hinted at new growth areas in his first major public appearance since the No. 1 social network's rocky IPO in May.
Brent crude oil prices rose 30 cents to $115.70 a barrel on the German judicial decision, expectations for Fed easing and rising geopolitical risk after militants killed the U.S. ambassador to Libya. <O/R>
But U.S. October crude slipped 16 cents to settle at $97.01 a barrel, after reaching $98.06. It dropped as low as $96.31, below the $96.62 200-day moving average, a technical level closely watched by traders.
"More monetary liquidity plus geopolitical risk equals higher oil prices despite fundamentals like weaker manufacturing and demand," said Kimberly DuBord, director of research at Briefing Research in Chicago.
European stocks touched a 14-month high and the MSCI global share index .MIWD00000PUS, up 6.5 percent since the end of July, hit a five-month high of 332.42 before dipping back to be up 0.4 percent at 331.72 as profit-taking set in.
The German court's ruling damped demand for safe-haven assets like U.S. Treasuries and German bunds, leading to more tepid demand for the U.S. Treasury's $21 billion auction of 10-year notes.
The benchmark 10-year Treasury note fell 16/32 in price, its yield rising to 1.76 percent from 1.71 percent late on Tuesday.
Bund futures fell to their lowest since July.
(Additional reporting by Gertrude Chavez-Dreyfuss and Aleksandra Michalska; Editing by James Dalgleish; Editing by Dan Grebler)