Global stocks rose on Monday after U.S. data showed a pick-up in new home sales, reviving hopes for improvement in a tepid economic recovery, while the euro firmed against the dollar on increased risk tolerance.
The euro climbed to $1.30, the highest since July 20, getting a boost from investors' positive reaction to results of tests of European banks' health released late on Friday.
Sales of single-family U.S. homes in June jumped 23.6 percent, the largest increase since May 1980, from the prior month's record low, pushing U.S. Treasury prices lower and supporting oil prices.
There was a big revision down in the prior month, but then obviously a rebound this month. We're still at these trough levels, which we've been bouncing along. It's a good sign that we did see an increase after the tax credit expired, said Michael O'Rourke, chief market strategist at BTIG LLC, in New York.
O'Rourke referred to an Obama administration tax break for home buyers to stimulate the economy.
The Dow Jones industrial average <.DJI> closed up 100.81 points, or 0.97 percent, at 10,525.43. The Standard & Poor's 500 Index <.SPX> gained 12.35 points, or 1.12 percent, to 1,115.01. The Nasdaq Composite Index <.IXIC> rose 26.96 points, or 1.19 percent, to 2,296.43.
U.S. stocks also got a lift from FedEx Corp after the bellwether raised its earnings outlook, sending its stock up more than 4 percent. Stronger outlooks for transportation firms like FedEx are seen as a sign of growing economic demand.
European shares closed at a five-week high, helped by the U.S. housing data, with the banking sector among the top performers following the bank stress test results.
The tests were aimed partly at opening the door to funding markets for a batch of southern European banks and lowering costs for other lenders.
Seven of 91 banks failed the test, including five from Spain, and another 17 barely passed the EU tests, which have been widely criticized as not demanding enough.
The pan-European FTSEurofirst 300 <.FTEU3> index of top shares closed 0.4 percent higher at 1,048 points.
World stocks as measured by MSCI <.MIWD00000PUS> rose 1.15 percent and the Thomson Reuters global stock index <.TRXFLDGLPU> gained 1 percent.
After Friday's release of the European bank stress test results and Monday's strong U.S. housing data for June, the euro touched $1.30 against the dollar, the highest since July 20. On electronic trading platform EBS, it later hovered around $1.2992, still up 0.68 percent.
Investors were upbeat about a series of reports in the past week showing the broader European economy was stronger than thought.
Against the Japanese yen, the dollar was down 0.69 percent at 86.84 from a previous session close of 87.440.
Purchasing managers' indexes indicated third-quarter euro zone growth of around 0.6 to 0.7 percent. German business sentiment also posted a record jump in July to its highest level in three years. Britain, not in the euro zone, added to the mix with an economy growing twice as quickly as expected in the second quarter.
Despite the market's single-minded focus on the stress tests, the more important story was the surprisingly strong economic data from the region (last week), said Boris Schlossberg, a director for currency research at GFT in New York.
U.S. Treasuries were mixed as benchmark 10-year Treasury note's 3 percent yield drew some buyers.
The overarching factor (that pushed) yields higher was relief that the stress tests had come and gone without major incident, said Robert Tipp, chief investment strategist for Prudential Fixed Income, whose team helps oversee approximately $240 billion in fixed income assets.
The benchmark 10-year U.S. Treasury note was up 1/32, with the yield at 2.9942 percent. The 2-year U.S. Treasury note was down 1/32, with the yield at 0.5964 percent. The 30-year U.S. Treasury bond was unchanged with the yield at 4.0202 percent.
U.S. crude oil prices turned positive after the economic data, having been pressured earlier on Tropical Storm Bonnie's fade from the Gulf of Mexico.
Oil was trading at around $79 a barrel, flat after rising on the U.S. housing data. The price of gold fell $7.35, or 0.62 percent, to $1181.20, as the metal lost some of its safe-haven appeal due to the European stress test results, robust U.S. company earnings and vigorous euro zone data.
(Additional reporting by Vivianne Rodrigues, Ellen Freilich, Ryan Vlastelica in New York; Editing by Dan Grebler)