NEW YORK World stock prices rose to near five-year highs on Monday on growing investor optimism after Japanese Prime Minister Shinzo Abe strengthened his power base, adding weight to his plans to jumpstart the world's third-biggest economy.
The Standard & Poor's 500 stock index hit a record closing high for a third straight session.
Investors' mood was also helped by a pledge from the Group of 20 on Saturday to put growth before austerity, seeking to revive a global economy that the bloc described as "too weak.
The yen rebounded after an initial dip in Tokyo, but many traders viewed the bounce as temporary in view of Abe's upper house election win on Sunday.
Riskier assets, including peripheral euro zone bonds, got a boost after Portugal's president moved to keep the country's coalition government intact, patching over recent troubles.
However, disappointing earnings from McDonald's (MCD.N) mitigated the upbeat mood for equities as the U.S. fast-food giant posted weaker-than-expected results.
"McDonald's (earnings) headlines were a little weak, but I think we are still in the strong start of the earnings season," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.
Data showing a surprise drop in U.S. existing-home sales in June also tempered the initial buying of equities and other risky assets.
"I think we're stuck in a range and we're very much at the top of this range," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.
"What will keep us from going up is fundamentals. We need economic fundamentals to drive market prices higher."
MSCI's world index .MIWD00000PUS, which tracks stocks in 45 countries, gained 0.44 percent to 375.49, helped by a 0.47 percent rise in Tokyo's Nikkei index .N225. It was about 7 points below a five-year high set in late May.
The Dow Jones industrial average .DJI closed up 1.81 points, or 0.01 percent, at 15,545.55. The Standard & Poor's 500 Index .SPX ended up 3.44 points, or 0.20 percent, at 1,695.53. The Nasdaq Composite Index .IXIC finished up 12.77 points, or 0.36 percent, at 3,600.39.
Both the S&P 500 and the Dow hit all-time highs last week following a moderate pullback of fears that the Federal Reserve might reduce its bond-purchase stimulus later this year if the economy improves further.
In Europe, upbeat results from Dutch electronics maker Philips (PHG.AS) and Swiss banks UBS UBSN.VX and Julius Baer BAER.VX boosted European share prices, but early gains were pared as profit-taking emerged.
The pan-European FTSEurofirst 00 index .FTEU3 ended 0.14 percent higher at 1,210.70, adding to its month-to-date gain of 5.5 percent. .EU
"We might consolidate here a bit after the rally but we are not entering a correction or anything. The market is shaking off the bad news from Google and Microsoft already," and that shows the upward momentum is strong, Schaeffer's Detrick said, referring to sub-par results from the two technology companies last week.
The slight pause in the summer stock rally provided further support for low-risk government debt in the wake of remarks from U.S. Federal Reserve Chairman Ben Bernanke that signaled the central bank will leave short-term rates near zero for a long time even if it stops purchasing bonds.
The benchmark 10-year U.S. Treasury note yield earlier touched 2.465 percent, its lowest level in over two weeks, before turning back to 2.480 percent, which was unchanged from late on Friday.
German Bund futures were little changed at 144.25.
The yen bounced back after an initial dip in Tokyo trading on some dollar selling by Japanese investors, which in turn triggered stop-loss selling in thin summer conditions.
"Japanese portfolio outflows is what will drive the yen lower in coming months. ... Confidence from this victory can be constructive but these outflows will be a slow-moving process," said Ned Rumpeltin, head of G-10 FX strategy at Standard Chartered Bank in London.
The dollar was down 1.1 percent on the day at 99.53 yen, a turnaround from an Asian session high of 100.71. The euro was 0.52 percent lower at 131.25 yen, well off an early high of 132.43.
The dollar index .DXY was 0.48 percent lower at 82.207, slipping further away from a three-year high set earlier this month.
Commodities were mostly firmer thanks to the softer dollar.
Spot gold recorded its biggest-single day gain in more than a year to its highest level in a month. It last traded up almost 3 percent at $1,334.36 an ounce. <GOL/>
Copper gained 1.6 percent to $7,023.75 a metric ton (1.1023 tons).
Oil prices were mixed after erasing early gains. Brent crude in London eked out an 8 cent, or 0.07 percent, gain at $108.15 a barrel, but U.S. crude settled down $1.14, or 1.06 percent, at $106.91 after hitting a near 16-month peak of $109.32 on Friday. <O/R>
(Additional reporting by Angela Moon, Rodrigo Campos, Frank Tang in New York; Marc Jones, Emelia Sithole-Matarise and Carolyn Cohn in London; Editing by Dan Grebler and Leslie Adler)