Shares rally, dollar gains as U.S. data buoys markets

By Herbert Lash

NEW YORK (Reuters) - Global equity markets and the dollar rose on Tuesday after U.S. economic data ranging from manufacturing and housing to consumer confidence delivered a dose of optimism to investors rattled in recent days by worries over Federal Reserve policy.

Orders for durable goods rose more than expected in May and a gauge of planned business spending gained for a third straight month, while prices of single-family homes posted their biggest rise in seven years in April.

Also on Tuesday, the Conference Board, a private business research group, reported that its U.S. consumer confidence index rose in June to 81.4, well above economists' expectations, from a downwardly revised 74.3 in the prior month.

The data appeared bullish, as the economy is improving, and the market was due for a rebound after Monday's drop, which followed the worst week for the S&P 500 in two months.

The benchmark index is off 4.9 percent from its all-time closing high set in May.

"Investors have kind of come to the conclusion that 'OK, we've made a knee-jerk reaction to what the Fed has said, and now we've taken some deep breaths and we can reassess," said Mike Binger, senior portfolio manager at Gradient Investments LLC in Minneapolis.

But the economic data suggests the Fed can move forward with plans to ease its bond-buying program, fears that drove bond yields to jump and stocks to slide in the recent selloff.

Investors are caught between news that normally would be regarded as good for equities, but the Fed remains a worry.

"The Fed has us in a mentality where the good news is bad news," said Donald Selkin, chief market strategist at National Securities in New York, which has about $3 billion in assets under management.

Global markets tracked by MSCI's all-country world equity index were up 0.82 percent, while the FTSEurofirst 300 index of leading European companies rose 1.45 percent to close at 1,130.37, recovering some of the 5.5 percent it lost in the previous three trading days.

The Dow Jones industrial average closed up 100.75 points, or 0.69 percent, at 14,760.31. The Standard & Poor's 500 Index rose 14.94 points, or 0.95 percent, at 1,588.03. The Nasdaq Composite Index gained 27.13 points, or 0.82 percent, at 3,347.89.

The pause in the market's recent rout began when two Fed policymakers on Monday downplayed the notion of an imminent end to the central bank's money-printing and said the market reaction was not yet a cause for concern.

Asian markets then capped a day of wild swings, during which Chinese stocks plunged to their lowest since the global financial crisis began, with a late rally on hopes authorities in China would step in to prevent a crisis.

China's central bank fueled the talk at a news briefing where it sought to allay fears of a credit squeeze by committing to guide interest rates to "reasonable" levels after they had been allowed to spike over the past week.

The dollar extended gains against the yen and euro on Tuesday after data showed sales of new U.S. single-family homes rose to their highest in nearly five years in May, confirming the housing market's strengthening tone.

The dollar rose against the yen to 97.76 yen from about 97.61 yen before the data, up 0.04 percent on the day.

The euro fell to the session low of $1.3066, where it traded before the data. It was trading at 1.3094, down 0.18 percent.

Prices of U.S. Treasuries edged down slightly in choppy trade, while German Bund futures pared their early gains on news of the manufacturing data.

The benchmark 10-year U.S. Treasury note was down 15/32 in price to yield 2.5988 percent.

Bund futures settled at 140.54, up 23 ticks from Monday's close, having risen as high as 141.01 before the data.

Crude oil prices were slightly higher in lackluster trading, with gains kept in check by a stronger U.S. dollar and less chance of reduced U.S. imports from Canada as part of a Canadian pipeline came back online.

The crude market traded sideways after last week's sharp selloff on news about the Fed and its monetary stimulus program.

"So we've shed $5, now do we see a reason to recoup that? It's a soft market, it's not a market that's getting a lot of information," said Sarah Emerson, managing principal of energy research and forecasting firm ESAI Energy in Wakefield, Massachusetts.

Brent crude rose 10 cents to settle at $101.26 a barrel. U.S. oil rose 14 cents to settle at $95.32.

U.S. gold futures for August delivery fell 0.16 percent to settle at $1,275.10 an ounce. July options expired without incident, traders said.

(Additional reporting by Richard Hubbard in London, editing by Dan Grebler)