World shares and the euro hit their highest marks in over a week on Tuesday, buoyed by returning confidence in Germany's economy, upbeat US earnings and hopes Europe can advance plans to tackle Spain and Greece's debts later this week.
The closely watched monthly survey from the ZEW institute showed a better than expected improvement in German investor confidence, adding to recent signs that the euro zone's biggest economy is fighting hard to stave off the bloc's debt troubles.
It added to a run of recent forecast-beating data and pushed European shares on the FTSE Eurofirst 300 index and the MSCI index of global shares up 1.0 and 0.6 percent respectively, to their highest levels in over a week.
US stock futures also pointed to a positive open on Wall Street as strong results from Goldman Sachs ahead of the open helped maintain the feel-good ambience encouraged by Citigroup and JP Morgan earnings in recent days.
“We are still positive and think this rally still has legs,” said Robert Parkes, an equity strategist at HSBC.
“The four biggest US indicators have all surprised to the upside, there is some tentative evidence that the Chinese economy is starting to re-accelerate and even in Europe, arguably the problem child of the global economy, there are signs of stabilisation.”
US corporate bellwethers IBM and Intel will also report later.
In Germany, the ZEW view that concerns about the economy may have bottomed, helped markets look past the worst month for European car sales in a year and a deterioration in triple A-rated Austria's finances.
European leaders meet in Brussels on Thursday and investors are looking for signals that may affect expectations that Spain will ask for a bailout in the coming weeks - a move which would activate the European Central Bank's bond buying scheme - and that Greece will be given support to allow it stay in the euro.
Greek Prime Minister Antonis Samaras said late on Monday that he was confident Athens would be given its next instalment of rescue funding.
German Finance minister Wolfgang Schaeuble called for a new push toward fiscal union: “We must use this chance,” he said.
The supportive talk helped propel the euro through the $1.30 mark against a marginally weaker dollar, albeit one which hit a one-month high versus the yen, supported by Softbank's bid for Sprint.
A media report that Germany is open to Spain seeking a precautionary credit line from Europe's rescue fund rather than a fuller aid package, sparked another rush from the single currency, pushing it through technical barriers to $1.3048.
“News that Germany is now open to a possible credit line to Spain is really surprising as Germany has always showed its preference to a stricter programme. Let's see what the ECB has to say now,” said Annalisa Piazza at Newedge Strategy.
Bond markets continued to see a return of risk appetite with demand for German government bonds - viewed as a safe-haven asset - dipping and Italian and Spanish 10-year bonds stable.
Commodities demonstrated a similar pattern. Oil was steady above $115 a barrel, underpinned by supply concerns after the European Union slapped more sanctions on Iran, while copper and other metals attuned to the economic cycle pulled away from recent one-month lows.
Riding in the slipstream of equities and the euro, gold recovered some of the previous day's falls to climb to $1743.3 an ounce.
Bullion has been underpinned by expectations that stimulus from central banks will keep interest rates low and fuel inflation in the longer term. If economies do begin to right themselves, central banks could scale back their efforts.
Noting effects from the Federal Reserve's quantitative easing, Li Ning, an analyst at Shanghai CIFCO Futures, said: “The support from QE3 is fading... And if the economy keeps improving, investors will wonder about the length and scale of QE3.”
Earlier in the day Asian shares finished up 0.6 percent as they brushed off caution ahead of Thursday's third-quarter economic growth numbers from China.
Australian shares also hit a 14-month high and the local dollar climbed 0.75 percent as investors eyed further interest rate cuts after the central bank said its cut this month was a bid to tackle slowing growth. - Reuters