The euro rose more than 1 percent against the dollar on Tuesday on buying by sovereign funds and a surge in German investor sentiment, while global stocks hit a fresh 28-month high despite a sluggish U.S. open.

More gains for the euro are expected after the ZEW think tank in Germany said about 50 percent of investors now expect the European Central Bank will have to raise interest rates within the next six months.

ZEW's monthly index jumped to 15.4 points from a reading of 4.3 in December, its highest level since July, and easily surpassed the consensus forecast of 6.8 points in a Reuters poll of 36 economists.

The euro rose as high as $1.3467 on trading platform EBS and was last trading up 1.2 percent at $1.3447.

Hopes for strong corporate results drove European shares to a 28-month high, with banks and automakers leading the rally. Banks bounced back after losses on Monday, with Bank of Ireland up 6.8 percent and BBVA rising 4.8 percent.

Markets are driven mostly by the good ZEW figures, technical reasons and enduring good mood regarding company earnings, said Roger Peeters, strategist at Close Brothers.

Solid figures from the next Blue chips, which will report results later this week, can give the markets further impulses.

Wall Street hovered near break-even, with an earnings miss from Citigroup and the medical leave of absence by Chief Executive Steve Jobs at Apple putting a dent on investors' sentiment.

The Dow Jones industrial average <.DJI> was up 54.94 points, or 0.47 percent, at 11,842.32. The Standard & Poor's 500 Index <.SPX> was up 0.56 points, or 0.04 percent, at 1,293.80. The Nasdaq Composite Index <.IXIC> was down 0.67 points, or 0.02 percent, at 2,754.63.

Oil slid in early trading after the International Energy Agency said members of the Organization of Petroleum Exporting Countries had been quietly raising output and the oil producing group insisted the market was amply supplied.

North Sea Brent for March rose 15 cents to trade at $97.58 a barrel. U.S. crude oil prices traded flat at $91.54 a barrel as deliveries through a key north American supply route, the Trans-Alaskan pipeline, started up.

Higher-yielding euro zone bonds fell, helping German benchmarks off one-month lows after the Dutch finance minister said the Eurogroup had rejected enlarging a rescue fund for the region's more indebted states.

Dutch Finance Minister Jan Kees de Jager told reporters euro zone finance ministers had discussed but rejected the idea to increase the European Stability Fund to 750 billion euros.

U.S. government debt prices fell to session lows, erasing earlier gains in mid-morning trading.

The price on benchmark 10-year notes last traded down 12/32, wiping out an initial 14/32 gain, with their yield at 3.38 percent.

Gold rose for a second day, drawing strength from a weaker dollar and demand from key Asian consumers.

Spot gold prices rose $9.50 to $1,371.90 an ounce.

Copper rose as the dollar fell and European equities surged on signs of improving economic growth, which suggests better prospects for industrial metals demand.

The dollar was down against a basket of major currencies, with the U.S. Dollar Index <.DXY> down 0.79 percent at 78.708.

Against the Japanese yen, the dollar was down 0.19 percent at 82.56.

Overnight in Asia, Japan's Nikkei <.N225> closed up 0.15 percent, while MSCI's index for Asian shares outside of Japan <.MIAPJ0000PUS> rose 0.6 percent.

(Reporting by Julie Haviv, Richard Leong ; Writing by Herbert Lash, Editing by Chizu Nomiyama)