World stocks gain on China data

NEW YORK (Reuters) - The yen rallied on Tuesday, snapping a three-day decline against the dollar and euro as it neared 100 to the dollar, while a fall in Chinese inflation and expectations for modest growth in U.S. corporate earnings helped stocks.

The Japanese currency weakened to reach 99.66 to the dollar using Reuters data, the greenback's strongest level against it since May 2009, before the sell-off in the yen stalled. The euro peaked at 129.93 yen, its highest since January 2010.

Analysts believe it is only a matter of time before the dollar sails past the 100 yen mark.

"Given the breadth of yen bearishness, any reprieve would likely encourage investors to reestablish short yen positions at more favorable exchange rates," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.

The dollar selling on Tuesday left the greenback down 0.5 percent at 98.86 yen, while the euro was off 0.1 percent on the day at 129.13 yen.

Equity markets were up as investors hoped for more accommodative monetary policy from China following benign inflation data, and after U.S. resources giant Alcoa posted earnings.

The Dow Jones industrial average was up 24.78 points, or 0.17 percent, at 14,638.26. The Standard & Poor's 500 Index was up 2.51 points, or 0.16 percent, at 1,565.58. The Nasdaq Composite Index was up 6.93 points, or 0.22 percent, at 3,229.19.

A significant driver of the rally has been the extraordinary stimulus measures from the Federal Reserve, and with the start of corporate earnings season for the first quarter, investors will be looking at company forecasts to gauge whether the fundamentals are strong enough to keep stocks climbing higher, said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.

"The rally will be confirmed if earnings can stay strong and if companies can continue to thrive even as government spending is reduced, and I think it will falter if it proves (companies) are unable to do so," said Meckler.

Alcoa Inc, the first Dow component to release results, reported a higher quarterly profit but lower-than-expected revenue after the bell on Monday. Shares of the largest U.S. aluminum producer were up 0.3 percent at $8.43.

(Reporting By Nick Olivari; Editing by Chizu Nomiyama)