GLOBAL MARKETS-Stocks, oil rise as U.S. retailers surprise

                                
   * Global stocks rally as Home Depot, Target surprise
                                
 * Crude oil firms above $68 ahead of inventory data
                                
 * Euro lifted by ZEW data but retreats from day's high
                                
 * Gold firms as dollar declines, oil prices recover
 (Updates with U.S. markets, changes byline, dateline; previous
LONDON)
                                
 By Herbert Lash
                                
 NEW YORK, Aug 18 (Reuters) - Global stocks rallied on
Tuesday, rebounding from the previous day's sharp fall, and oil
prices rose above $68 a barrel ahead of key U.S. inventory data
as crude markets tracked stock market gains.
                                
 The euro rose, recovering from multi-week lows against the
dollar and yen, after an unexpected rise in German investor
sentiment boosted optimism about the euro zone economy. For
more see: [ID:nN18441586].
                                
 But government debt prices were little changed as data
showed a surprise fall in U.S. housing starts and a steeper
than forecast fall in wholesale inflation, which tempered the
strength in equity markets. [ID:nN18410346]
                                
 Investors also took a breather from a recent government
debt rally. A rally in euro zone government bonds came to a
halt, with Bund futures snapping a six-session rally and
retreating from a one-month peak.
                                
 Better-than-expected corporate results from U.S. retailers
Home Depot Inc <HD.N> and Target Corp <TGT.N> helped lift Wall
Street and offset concerns about the U.S. housing outlook.
                                
 "The market is still very uncertain whether it should be
going for the story of a V-shaped recovery or a W-shaped
recovery. It's a very split market," said Niels From, chief
analyst at Nordea in Copenhagen.
                                
 U.S. housing starts and permits for new homes unexpectedly
slipped in July, while the inventory of total houses under
construction fell to a record low, a government report showed.
                                
 However, some analysts said that fewer new houses may allow
the market to absorb inventory and support prices, leading
homebuilders higher. [ID:nN17348766] The Dow Jones home
construction <.DJUSHB> index rose 2.3 percent.
                                
 "We are seeing some tentative signs of improvement in the
market this morning, following yesterday's losses around the
world," said Michael Sheldon, chief market strategist at RDM
Financial in Westport, Connecticut.
                                
 The Dow Jones industrial average <.DJI> was up 84.64
points, or 0.47 percent, at 9,219.88. The Standard & Poor's 500
Index <.SPX> was up 10.06 points, or 1.02 percent, at 989.79.
The Nasdaq Composite Index <.IXIC> was up 24.17 points, or 1.25
percent, at 1,955.02.
                                
 European equities ended higher after hitting a two-week low
on Monday, with stronger crude oil prices supporting energy
shares and Swedbank <SWEDa.ST> leading banking shares higher.
                                
 The FTSEurofirst 300 <.FTEU3> index of top European shares
came under some pressure on the U.S. housing data, but moved
back up to close 1.4 percent higher at 934.56.
                                
 "Since the big part of the results season is over, the
market will focus on the macroeconomic side," said Dang
Chicuong, an equity analyst at Richelieu Finance in Paris.
                                
 Oil investors turned their focus to inventory data.
                                
 The release of weekly data from the American Petroleum
Institute at 2030 GMT will be followed by U.S. government
figures from the Energy Information Agency on Wednesday, with
analysts expecting more signs of weak U.S. demand.
                                
 U.S. crude for September delivery <CLc1> was up $1.65 at
$68.40 a barrel. London Brent crude for October <LCOc1> was up
$1.19 at $71.73.
                                
 Gold <XAU=> firmed as the dollar weakened against the euro
after the above-consensus German investment sentiment data, and
as oil prices recovered earlier losses, boosting interest in
the metal as an inflation hedge. [ID:nLI62842]
                                
 The interbank cost of borrowing dollar <USD3MSFR=> and
sterling <GBP3MFSR=> funds set record lows on Tuesday.
[ID:nLI331741]
                                
 Central bankers at an annual meeting convened by the
Federal Reserve in Jackson Hole, Wyoming later this week are
expected to discuss how to gradually mop up liquidity that has
helped money markets stabilize two years into the crisis.
                                
 The extra cash has driven short-term borrowing costs to
their lowest levels ever and brought some key gauges of stress
in short-term lending markets to pre-crisis levels.
                                
 Japan's Nikkei share average <.N225> rose 0.2 percent on
some late session buying of technology shares, while the MSCI
index of Asia Pacific stocks traded outside Japan
<.MIAPJ0000PUS> gained 0.3 percent.
 (Reporting by Edward Krudy, Steven C. Johnson and Chris Reese
in New York and Atul Prakash, Emelia Sithole-Matarise, Joe
Brock, Ian Chua and Jan Harvey in London; Writing by Herbert
Lash; Editing by James Dalgleish)