| NEW YORK
NEW YORK Global shares prices rose on Tuesday as two big U.S. retailers reported higher-than-expected earnings, while the euro rose as worries over Europe's sovereign debt problems eased.
Solid demand for European bonds also helped the euro strengthen for a second straight day.
Mergers and acquisition talk boosted shares after mining giant BHP Billiton Ltd (BHP.AX)(BLT.L) made an unsolicited $38.6 billion takeover bid for Canada's Potash Corp of Saskatchewan Inc (POT.TO)(POT.N).
The yen, which has hovered near 15-year highs against the greenback and seven-week peaks against the euro, gave up ground as investors converted safe-haven cash to take advantage of beaten down asset prices.
Spot gold prices edged up to seven-week highs while crude oil prices rose slightly after a sell-off on Monday, benefiting from the U.S. dollar's weak performance.
U.S. Treasury prices fell sharply after rallying on Monday on speculative buying ahead of purchases by the U.S. Federal Reserve, which said it is reinvesting the proceeds of its mortgage bond holdings by buying U.S. Treasuries.
At the close the Dow Jones industrial average .DJI rose 103.84 points, or 1.01 percent, to 10,405.85. The Standard & Poor's 500 Index .SPX gained 13.16 points, or 1.22 percent, to 1,092.54. The Nasdaq Composite Index .IXIC climbed 27.57 points, or 1.26 percent, to 2,209.44.
Potash, the world's largest fertilizer maker, rejected the bid from BHP Billiton as "grossly inadequate," though its shares surged and the bid helped boost the market.
"The deal talk is a big catalyst for today's rally. It validates that there is a greater confidence in the outlook for materials companies," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in New Jersey.
Wal-Mart Stores Inc (WMT.N), the world's largest retailer, and Home Depot Inc (HD.N), the biggest U.S. home improvement chain, both beat analyst earnings estimates.
Wal-Mart's shares rose 1.21 percent to $51.02 while Home Depot added 3.39 percent to $28.31.
Dan Cook, senior market analyst at IG Markets in Chicago, warned that profits driven by cost-cutting at Wal-Mart did not demonstrate underlying strength in the economy.
"The increase in M&A shows CEO's and CFO's have more confidence in the outlook for the economy and are willing to start to deploy some of the high cash balances, which have built up in recent months," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
Potash's U.S.-traded stock rose 27.65 percent to $143.17.
In the latest economic data, producer prices increased in July for the first time in four months, helping to allay concerns about deflation, but housing starts rose at a weaker rate than expected and permits fell to their lowest point in more than a year.
In Europe, shares rose, with insurers among the biggest gainers. The FTSEurofirst 300 index of top European shares .FTEU3 closed 1.1 percent higher at 1,056.54 points, ending at its highest level in a week.
Trading volumes, however, were low due to the holiday period, at 57 percent of its average 90-day volume on the FTSEurofirst 300.
Insurer Aegon (AEGN.AS) rose 6.76 percent after the European Union approved its recapitalization.
The Thomson Reuters global stock index .TRXFLDGLPU rose 1.04 percent and the MSCI All-Country World Index .MIWD00000PUS gained 1.11 percent.
Japan's Nikkei 225 index .N225 fell 0.4 percent to its lowest close in more than eight months on thin trading volumes.
Strong demand at Irish and Spanish bond auctions helped boost the euro. Ireland's sale of 2014 and 2020 paper was viewed as a litmus test for investor appetite amid concerns about the cost of cleaning up the country's banking sector.
The euro rose 0.42 percent to $1.2877 while the greenback rose 0.16 percent to 85.50 yen. Against a basket of currencies made up of its major trading partners, the U.S. dollar fell 0.36 percent .DXY.
The bond auctions overshadowed the influential German ZEW report. Analyst and investor economic sentiment fell in August to its lowest level since April 2009 on concerns a faltering global economic recovery would hit Europe's largest economy.
German government bonds fell with the 10-year yield pushing up from a record low set in the previous session after the debt sales eased funding worries in the euro zone periphery.
The 10-year Bund yield gained 3.7 basis points to 2.36 percent, off an all-time low around 2.31 percent plumbed on Monday.
Benchmark 10-year U.S. Treasuries fell 21/32 of point in price, pushing the yield up to 2.64 percent off Monday's 17-month closing low of 2.57 percent.
Gold rose on the weaker dollar and expectations of further buying by investors concerned about the stuttering pace of recovery. Spot gold hit $1,228.45, its highest level since July 1, before slipping to $1,224.55 an ounce, up $1.70.
Oil rose from one-month lows but concerns linger that demand could fall. U.S. light sweet crude oil settled at $75.77, up $0.53 per barrel.
(Additional reporting by Angela Moon, Edward Krudy, Aiko Hayashi, Elaine Lies, Ian Chua, Anirban Nag, Brian Gorman, Michael Taylor; Editing by Kenneth Barry)