NEW YORK (Reuters) - Global equity markets surged on Monday, with the Dow industrials and S&P 500 hitting record closing highs, as Wall Street advanced in a broad rally spurred by strong corporate results and an improving economic outlook.
Prices of U.S. Treasury debt fell, while European shares scaled six-year highs, underpinned by fresh takeover activity and renewed speculation about monetary stimulus from the European Central Bank.
On Wall Street, eight of the 10 primary S&P 500 sectors rose as advancing stocks topped declining shares by almost 4 to 1 on both the New York Stock Exchange and the Nasdaq market.
The Dow set both an all-time peak and record close, while the S&P came within 16 basis points of an all-time high before slightly pulling back from its high of the day.
Weak economic data during the harsh winter and surprising strength in the bond market had kept money in fixed income, said David Kelly, chief global strategist for JPMorgan Funds in New York. But an improving economic outlook has drawn investors back into stocks.
"I hate to make day-to-day rationalizations of the behavior of the market, but the key point is, falling unemployment and rising economic growth ultimately mean that both interest rates and stocks prices are likely to move higher," Kelly said.
Estimate-beating results from Italian lenders UniCredit and Banca Popolare di Milano reinforced optimism about a recovery in Italy, whose shares have outperformed Germany and France over the past year.
MSCI's all-country world index gained 0.7 percent, and the pan-European FTSEurofirst 300's index of leading shares rose 0.67 percent to close at 1,364.48.
The Dow Jones industrial average rose 112.13 points, or 0.68 percent, to 16,695.47. The S&P 500 gained 18.17 points, or 0.97 percent, to 1,896.65, and the Nasdaq Composite added 71.99 points, or 1.77 percent, to 4,143.859.
Equity markets shrugged off a weekend referendum in Ukraine, where pro-Moscow rebel organizers said nearly 90 percent had voted in favor of self-rule, possibly adding fuel to a conflict spinning increasingly out of control.
U.S. Treasuries yields rose before a heavy week of data that includes retail sales and consumer price reports, which will be watched for signs of economic strength, as well as whether inflation is rising from levels below the Federal Reserve's targets.
Benchmark 10-year notes were last down 8/32 in price to push their yield up to 2.6539 percent.
The euro traded near break-even against the dollar and yen, ignoring the weekend referendum in Ukraine.
Against sterling, however, the euro fell to a 16-month low on growing bets the European Central Bank will ease monetary policy just as the Bank of England prepares to raise rates.
The euro's gains were trimmed after dovish comments from Austria's central banker, Ewald Nowotny. He told reporters it would take more than a cut in interest rates to combat low inflation in the euro zone.
The euro rose 0.01 percent against the greenback at $1.3758. The dollar rose 0.27 percent against the yen at 102.13.
Crude oil futures rose as investors braced for a possible supply disruption after the Ukraine referendum prompted the European Union to widen sanctions to Russian individuals and Crimean companies.
Top global oil exporter Saudi Arabia volunteered to supply more crude in the event of a shortage.
Brent crude settled up 52 cents at $108.41 a barrel.
U.S. crude gained 60 cents to settle at $100.59 a barrel.
Reporting by Herbert Lash; Additional reporting by Marc Jones in London; Editing by Dan Grebler and Leslie Adler