The euro hit a fresh two-month high on Monday as hopes for a durable solution to the euro-zone debt crisis pushed the currency past key technical levels, while stocks rose on bets of higher growth in the global economy.
Prices of copper and other metals rose as the optimism about growth triggered worries about supply constraints, driving up shares of miners and natural resources companies.
Asian shares headed to a positive start, with Nikkei futures traded in Chicago up 0.9 percent at 10,415.00.
Speculation that the European Central Bank might raise interest rates also provided support for the euro, pushing it as high as $1.3683 on trading platform EBS, a fresh two-month high against the dollar. It last traded up 0.21 percent at $1.3644.
They are closer to tightening in the euro zone with a lot less spare capacity, and it is realistic to expect the ECB to tighten before the Federal Reserve, said Kathy Lien, director of research at GFT Forex in New York.
Expectations of higher rates in Europe grew after ECB chief Jean-Claude Trichet sounded tougher on inflation.
The European single currency has gained nearly 6 percent from this year's low as investors grew more confident about the euro zone's economic prospects.
Some analysts feared, however, that the rally was close to an end as political turmoil in Ireland was a reminder of the uncertainties plaguing the most indebted European countries.
The euro's had a sharp rebound recently, but we think it's nearing its top in the bigger picture, said Ian Stannard, senior currency strategist at BNP Paribas.
It's supported in the near-term by optimism over talks on the European rescue fund, but political problems in Ireland and Portugal show there are still lots of factors out there to hurt the currency, he added.
The U.S. dollar slipped 0.23 percent against a basket of major currencies, according to the U.S. Dollar Index <.DXY>. Against the Japanese yen, it fell 0.15 percent to 82.46.
STOCKS EXTEND GAINS
Global equities advanced as U.S. stocks found strength in large-cap technology and natural resources shares, which were lifted by bets on global growth prospects and Intel's gains.
The Dow Jones industrial average <.DJI> extended its rally after eight weeks of gains, rising 108.68 points, or 0.92 percent, to end at 11,980.52. The Standard & Poor's 500 Index <.SPX> advanced 7.49 points, or 0.58 percent, to close at 1,290.84, while the Nasdaq Composite Index <.IXIC> added 28.01 points, or 1.04 percent, to 2,717.55.
The blue-chip Dow average came close to touching the psychologically important 12,000 level, with its climb intraday to a fresh 52-week high at 11,982.94.
Climbing copper prices and tin prices rising to all-time highs reflected concerns over supply constraints and buoyed materials companies' stocks.
It's very difficult to ignore the positive implications for earnings in material stocks when the global economy is gaining traction, said Howard Ward, portfolio manager of the GAMCO Growth Fund in Rye, New York.
World shares as measured by the MSCI All-Country World Index <.MIWD00000PUS> rose 0.64 percent, while the FTSEurofirst 300 index <.FTEU3> of top European shares added 0.25 percent to close at 1,151.18, supported by gains in mining stocks.
U.S. crude oil prices dropped $1.24, or 1.39 percent, to settle at $87.87 per barrel in choppy trading, even as heating oil futures were lifted by U.S. cold weather.
Still weighing on oil prices was last week's U.S. data showing an increase in oil inventories against forecasts for lower stockpiles.
Investors also were cautious before the U.S. Federal Reserve's first monetary policy meeting this year on Tuesday and Wednesday.
Prices of U.S. Treasuries were virtually unchanged as traders awaited an upcoming supply of debt and the outcome of the Fed's meeting. The benchmark 10-year note was up 1/32 in price, with the yield at 3.406 percent.
The Fed is expected to buy $29 billion in U.S. debt, buying Treasuries on four of five trading days this week. It will also issue a policy statement on Wednesday after its meeting -- its first meeting of the year.
(Reporting by Walter Brandimarte and Alina Selyukh; Additional reporting by Rodrigo Campos, Ellen Freilich, Wanfeng Zhou and Atul Prakash; Editing by Jan Paschal)