NEW YORK World shares rose for a second day on Tuesday and the euro gained against the U.S. dollar as concern over U.S. corporate earnings eased and German economic data improved.
The euro jumped near $1.31 after market hours in New York to its highest since September 18 after rating agency Moody's affirmed its investment grade sovereign rating on Spain. Markets had feared that a downgrade could have forced some holders of Spanish debt to sell, further lifting Madrid's borrowing costs.
Reports that Spain may be close to seeking a bailout and that Greece may receive more financial aid stoked investors' appetite for riskier assets, with European shares closing up more than 1.0 percent, led by financial stocks.
U.S. stocks rose after stronger-than-expected earnings from big-name companies. Johnson & Johnson and UnitedHealth Group both increased their full-year profit forecasts while Goldman Sachs raised its dividend.
"One of the biggest things coming into this earnings reporting season was this drum beat for how bad it was going to be," said Art Hogan, managing director of Lazard Capital Markets in New York.
"We've got a chance to get some of that back because the worst-case scenario is not playing out."
The Dow Jones industrial average .DJI rose 127.55 points, or 0.95 percent, to 13,551.78. The S&P 500 .SPX gained 14.79 points, or 1.03 percent, to 1,454.92. The Nasdaq Composite .IXIC added 36.99 points, or 1.21 percent, to 3,101.17.
Citigroup's Vikram Pandit quit as chief executive after months of tension with the board in a move that surprised investors and employees of the third-largest U.S. bank. Citi's shares closed up 1.6 percent.
Major U.S. equity indexes posted their best two-day rally in a month, bouncing back after closing their worst week in four months on Friday. The S&P 500 is now less than 1.0 percent below its 2012 closing high set a month ago.
The closely watched monthly survey from the ZEW institute showed a better-than-expected improvement in German investor confidence, adding to recent signs that the euro zone's biggest economy is fighting hard to stave off the bloc's debt troubles.
The FTSEurofirst 300 index .FTEU3 closed up 1.35 percent and an MSCI index of global shares .WORLD rose 1.3 percent. U.S.-dollar denominated Nikkei futures jumped 1.7 percent.
European leaders meet in Brussels on Thursday and investors are looking for clues on whether Greece will be given support to allow it to stay in the euro and if Spain will ask for a bailout in the coming weeks, activating the European Central Bank's bond buying scheme.
EURO STRENGTHENS, YEN WEAKENS
Early in the session, the euro rose to a one-week high against the U.S. dollar and a four-week high against the yen and sterling, with traders initially citing a Bloomberg report that Germany was open to a precautionary line of credit for Spain.
The single currency pared some gains after one of the sources of the report said his comments were "over interpreted.
The euro was boosted late in the day by the Moody's affirmation of Spain's rating. It was last trading at $1.3093 after hitting a one-month high of $1.3098, according to Reuters data.
"It's a risk-on market with good news out of Europe," said Marc Principato, director of SMB Forex Trading And Education in New York.
Speculation of more monetary easing from the Bank of Japan weighed on the Japanese currency. The dollar rose to 78.96 yen, its strongest since September 19. It was last at 78.88 yen, up 0.3 percent.
U.S. Treasuries prices fell as the strong U.S. earnings boosted stocks and reduced the appeal of safe-haven debt.
The benchmark 10-year U.S. Treasury note was down 16/32, the yield at 1.7221 percent. The 30-year bond lost 1-13/32 points in price, its yield up to 2.92 percent.
Brent crude prices fell as the front-month November contract expired ahead of weekly inventory reports expected to show U.S. crude oil inventories rose last week. U.S. crude edged up with support from the rally in stocks and from a weaker dollar against the euro. <O/R>
November Brent fell 0.7 percent to $115.04 a barrel and U.S. crude rose 0.3 percent to $92.12.
(Additional reporting by Chuck Mikolajczak, Nick Olivari, Daniel Bases and Karen Brettell; Editing by Dan Grebler)