Markets gain modestly, U.S. housing data boosts Wall Street

By Chuck Mikolajczak

NEW YORK (Reuters) - World equity indexes advanced modestly on Monday as upbeat U.S. housing data helped Wall Street shrug off a weak manufacturing report, while the prospect of higher U.S. interest rates lifted the dollar for a third day.

U.S. equities rebounded as a report showed that U.S. homebuilder sentiment rose in August to its highest level in nearly a decade.

Earlier in the session, stocks had dropped as Empire State data showed August manufacturing activity in New York was at its weakest in years.

"The housing data was pretty good," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. "It certainly didn't hurt the bullish tone to everything housing-related."

Minutes from the U.S. Federal Reserve's most recent policymaking meeting are due to be released on Wednesday. Investors await that document for clues on how soon the Fed may hike rates for the first time in nearly 10 years, with many analysts expecting such a move by the end of the year.

The expectations for an impending rate hike helped the dollar rise, as did reassurance from China fixing its yuan exchange rate slightly higher for a second straight day. The dollar index was up 0.3 percent.

Housing stocks advanced after the NAHB/Wells Fargo Housing Market index showed U.S. homebuilder sentiment rose in August to its highest since a matching reading almost a decade ago. The PHLX housing sector index <.HGX> touched an 8-1/2 year high of 248.03 and closed up 1.2 percent at 248.01.

REBOUND

European stocks bounced from last week's heavy selloff of nearly 3 percent, with the pan-European FTSEurofirst 300 index closing up 0.25 percent.

MSCI's all-country world stock index edged up 0.16 percent.

Crude oil remained near 6-1/2 year lows, as U.S. crude settled down 1.5 percent at $41.87, while Brent settled down 0.9 percent to $48.74, after data indicated Japan's economy contracted in the second quarter amid oversupply concerns.

The Dow Jones industrial average rose 67.78 points, or 0.39 percent, to 17,545.18, the S&P 500 gained 10.9 points, or 0.52 percent, to 2,102.44 and the Nasdaq Composite added 43.46 points, or 0.86 percent, to 5,091.70.

Germany's DAX lost 0.4 percent <.GDAXI> and France's CAC 40 climbed 0.6 percent <.FCHI>. Britain's FTSE 100 <.FTSE> was flat, ending 0.01 percent lower.

The yuan fell more than 4 percent at one point last week, pulling down riskier assets, including emerging currencies globally on fears of a currency war. But China slowed the pace of the currency's drop and on Monday fixed it higher for the second day in a row.

Benchmark 10-year notes were last up 8/32 in price to yield 2.1695 percent from 2.198 late on Friday.

(Additional reporting by Rodrigo Campos; Editing by Nick Zieminski and Dan Grebler)