Stocks, commodities up on EU

New York - Global stocks hit a seven-week high on Monday and commodities rallied on optimism European leaders were moving closer to resolving their debt crisis as strong earnings from Caterpillar boosted risk appetite.

Stocks were also helped by Chinese data that eased fears of an abrupt slowdown in the world’s second-largest economy.

The euro climbed to a six-week high against the dollar in volatile trade, though investors remained wary of sharp differences over the extent of losses private holders of Greek bonds will have to accept.

European Union leaders neared agreement over the weekend on bank recapitalization and on how to leverage their rescue fund to try to stop bond market contagion. But final decisions were deferred until a second summit on Wednesday. For details, see

“There is still a lot of hope that a solution out of Europe this time will last, and that is sending the market higher to break above trading ranges,” said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York.

MSCI’s all-country world stock index was up 1.7%, after hitting its highest level since early September.

Some investors remained unconvinced plans on the table at a midweek European summit would fortify the European Financial Stability Facility enough to tackle the euro zone debt crisis.

Those concerns sent German government bond prices higher, while the spread between the yield on the 10-year Italian BTP benchmark bond and the equivalent German Bund widened. Italy is under mounting pressure from European partners to introduce measures to stimulate growth and restore market confidence.

“All eyes are looking at Wednesday’s possible answers. We are still not sure how the EFSF would work. This leaves a wide range of options open,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

The euro zone should combine two proposals for increasing the firepower of its rescue fund -- an insurance model and a special purpose investment vehicle (SPIV) -- according to an EU paper for the mid-week summit obtained by Reuters on Monday.

US stocks rose, adding to three weeks of gains for the S&P 500 index after stronger-than-expected Caterpillar results and some proposed acquisitions. Demand for Caterpillar’s heavy equipment is seen as a gauge of global economic health.

The Dow Jones industrial average was up 90.60 points, or 0.77%, at 11,899.39. The Standard & Poor’s 500 Index was up 14.05 points, or 1.13%, at 1,252.30. The Nasdaq Composite Index was up 55.51 points, or 2.10%, at 2,692.97.

European shares rose 1.1%. Earlier, Japan’s Nikkei added 1.9%. Emerging market shares rallied 3.5%.