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New York - Global stocks posted their strongest gains in three weeks and the euro rose on Tuesday on signs of improved economic prospects in Germany and the United States and a better-than-expected Spanish debt auction.
U.S. stocks opened sharply higher, led by energy shares as crude prices also rallied, and boosted by a 1-1/2 year high in housing starts and permits for future construction that suggested the housing market was starting to recover.
Still, traders were cautious about developments that could add to Europe's financial crisis, while the thin trading volume near year's end was expected to keep markets volatile.
The latest economic data "is good news," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York, about the U.S. housing data.
"It should add to this morning's strength in equities, and also to the good news out of Europe. The economy continues to show strength moving into the new year and we could look forward to growth exceeding market expectations.
"But of course," he said, "everything is subject to what is going on in Europe."
Markets have hinged on European headlines for months, as an escalating sovereign debt crisis threatens to take down the bloc's economy.
Defying weak expectations, German business morale rose sharply in December, underscoring the resilience of Europe's biggest economy.
The euro gained about 1% to $1.3129 after hitting an 11-month low of $1.2944 last week.
Growing expectations that European banks will borrow a large amount from the European Central Bank at its inaugural three-year offer on Wednesday and invest some of the money buying debt also supported the currency.
Global stocks as measured by MSCI jumped 1.9% to their best performance since November 30, while the European benchmark FTSEurofirst 300 rose 1.5%.
In morning trading in New York, the Dow Jones industrial average gained 236.62 points, or 2.01%, to 12 002.88. The S&P 500 Index rose 25.66 points, or 2.13%, to 1 231.01. The Nasdaq Composite added 57.39 points, or 2.27%, to 2 580.53.
Earlier, the mood in Asian markets was still risk-averse after the death of North Korean leader Kim Jong-il raised fears of regional instability, though stock markets recovered much of Monday's losses.
Key yields drop in Europe
Italian and Spanish bond yields fell, with investors hoping banks will borrow significant amounts of three-year funds from the ECB later this week and spend some of the money on higher-yielding debt.
But with Europe's banks being urged by regulators to reduce risk, raise capital and keep lending to business, some lenders may be more tempted to use the fresh funds to repay their own debts and boost their balance sheets.
Italian 10-year government bond yields were about 28 basis points lower at 6.58 percent. Equivalent Spanish paper fell 14 bps to 5.121 percent.
Safe-haven U.S. Treasuries fell in price, with the benchmark 10-year note down 19/32 and the yield rising to 1.8749 percent from 1.82 percent on Monday.
In the oil market, Brent and U.S. crude futures extended gains, partly due to threats to supply from Central Asian oil producer Kazakhstan and sanctions-hit Iran.
