Market calm underpins risk-on rally

By Jamie McGeever

LONDON (Reuters) - European stocks and global bond yields rose on Tuesday, with investor sentiment bolstered by historically low U.S. stock market volatility, last weekend's French presidential election result and solid corporate earnings.

Europe's index of leading 300 shares rose 0.5 percent to a near-two year high of 1,555 points, Germany's DAX rose 0.7 percent to a record high, and Britain's FTSE 100 added 0.6 percent.

Asian stocks did not perform as well, with China's seventh consecutive decline - the longest losing streak for four years - weighing on the region more broadly.

U.S. futures pointed to a slightly higher opening on Wall Street.

That would see the S&P 500 move beyond Monday's all-time record 2,401 points as the VIX index of implied volatility on the index - dubbed the Wall Street "fear gauge" - remained below 10.00, anchored near Monday's lowest closing level since December 1993.

"It's calm sailing today for stock markets," ETX Capital senior markets analyst, Neil Wilson, said.

Victory for business-friendly centrist Emmanuel Macron in France and earnings were also supportive for equities, he said, adding: "So far, there is precious little to halt the rotation from bonds to stocks."

The FTSEuroFirst hit its highest for nearly two years, and the index of top 50 euro zone stocks its highest for 18 months.

In Germany, shares in Commerzbank rose more than 2.5 percent after it posted forecast-beating profits in the first quarter, and mining companies were among leading gainers.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.1 percent and Japan's Nikkei fell 0.26 percent.

The MSCI World index, which touched a record high overnight, dropped about 0.1 percent.

FED UP, OTHERS STILL

In bond markets the 10-year U.S. Treasury yield rose to 2.394 percent, its highest in a month. The two-year yield held steady at 1.33 percent, meaning the yield curve rose to its steepest for more than two weeks.

German yields rose by 1-2 basis points and the 10-year British gilt yield rose around 4 basis points.

The U.S. yield curve had flattened last week to its lowest since the presidential election in November as investors fretted over the impact that higher interest rates will have on the economy.

Another hike in June is almost certain, according to market pricing, and investors now appear more convinced that the economy will take that in its stride, which could give the Federal Reserve more room to carry on tightening.

"For the most part, developed country central banks are pretty static when it comes to monetary policy," Standard Bank's head of G10 strategy in London, Steve Barrow, said. "Only the Fed is actively changing interest rates."

The positive sentiment also boosted the dollar.

It rose 0.5 percent against the yen to 113.80 yen and the euro fell 0.2 percent to $1.0895, another sign of its vertigo near $1.10. The dollar index was up 0.3 percent at 99.38.

In commodities, oil market sentiment swung between optimism over statements from major oil-producing countries that supply cuts could be extended into 2018 and lingering concerns over slowing demand and a rise in U.S. crude output.

U.S. crude rose 0.2 percent to $46.53 a barrel, and global benchmark Brent also rose 0.2 percent to $49.43.

Copper bounced from the four-month low touched on Monday after data showed a sharp drop on imports into China, the world's biggest consumer. London copper rose 0.5 percent to $5,515 a tonne on Tuesday, after falling to as low as $5,462.50 on Monday.

Gold recovered from a seven-week trough touched on Monday. Spot gold rose about 0.1 percent to $1,226.60 an ounce.

(Editing by Louise Ireland and John Stonestreet)