Robust U.S. company earnings and surprisingly vigorous euro zone economic data generally trumped investor skepticism about European bank stress tests on Monday to lift global stocks and bolster the euro against the dollar
Emerging market stocks were at a 2-1/2 month high.
There was weakness on European bourses, but banking stocks <.SX7P>, the key test, were flat to higher on the first trading day following the release of a broad report showing most financial institutions to be in relatively good shape.
Concern that the tests were not tough enough remained -- not considering sovereign debt default, for example -- but investors were generally being driven by more positive indicators.
Overall, we do not think that the stress result was a big success, but the market seems to be treating it as a non-event, BNP Paribas said in a note.
Investors were surprised last week by a series of reports showing the broader European economy to be stronger than thought.
Purchasing managers' indexes indicated third-quarter euro zone growth of around 0.6-0.7 percent, double the 0.3 percent forecast in the most recent Reuters poll. German business sentiment also posted a record jump in July to its highest level in three years.
Non-euro zone member Britain added to the mix with an economy growing twice as fast as expected in the second quarter.
Wall Street also weighed in with some bullish news on Friday, when U.S. conglomerate General Electric increased its quarterly dividend by 20 percent.
The wide-ranging impact GE has on the U.S. economy, coupled with another round of strong earnings, bolstered investor confidence.
World stocks as measured by MSCI <.MIWD00000PUS> were up 0.2 percent and the Thomson Reuters global stock index <.TRXFLDGLPU> gained about the same.
The FTSEurofirst 300 <.FTEU3> lost 0.4 percent.
The euro firmed against the dollar as investors bought into riskier assets. German government bonds fell in early trade.
The euro rose 0.2 percent from late U.S. trade on Friday to $1.2940. It earlier rose as high as $1.2958.
Data from the Commodity Futures Trading Commission showed currency speculators cutting down net short positions in the euro. (IMM/FX].
Looking at interbank lending following the stress tests, Jose Carlos Diez, chief economist at Intermoney in Madrid was asked by Reuters Insider whether there is a risk that failed Spanish cajas will be frozen out.
Tension in the money market will continue, he said.
(It is) very difficult to open the credit lines, that process will be very slow. Of course, we suffered a lot of tension in the last two months and I think up to the end of the year, we'll stabilize the access and situation of our banking system.
(Editing by Toby Chopra)