* World stocks rally on earnings optimism
* Euro recovers after Greece's debt auction results
* Downgrade of Portugal's ratings weighs on euro zone
(Updates with European markets close)
By Walter Brandimarte
NEW YORK, July 13 (Reuters) - The euro hit a two-month high
against the dollar on Tuesday after Greece successfully tapped
capital markets for the first time since late April, while
stocks rallied on the U.S. earnings season's strong start.
Athens passed its first borrowing test by successfully
selling Treasury bills at a slightly lower yield than the 5
percent it pays under an emergency funding deal secured in May
with the European Union and the International Monetary Fund.
The auction, worth 1.625 billion euros ($2 billion) in
six-month Greek T-bills, still will be more costly for Athens
than a previous similar sale, underscoring future refinancing
challenges for the debt-ridden country. Demand was also lower.
"It's good for Greece and the euro, but (Greece) has a long
way to travel, as its economic challenges are pretty severe,"
said Paul Robinson, a currency strategist at Barclays Capital
in London. "It's going to take years to figure this out, not
just one auction."
Also reminding investors of weaker euro-zone members'
financial woes was a two-notch downgrade of Portugal's credit
ratings by Moody's Investors Service. []
The euro <EUR=> gained 1.06 percent to $1.2722, its highest
level in two months, also supported by hopes that companies
will report strong second-quarter earnings on both sides of the
Atlantic.
Optimism about this season's earnings rose after Alcoa
<AA.N>, the first Dow component to report, posted
second-quarter results late on Monday that beat expectations.
Rail company CSX also posted a higher-than-expected profit. For
details, see [] and [].
Investors have been eagerly awaiting the second quarter
earnings season for confirmation that a recent stock rally was
justified. The S&P rose more than 5 percent last week, its best
weekly performance of the year, despite rising fears the past
two weeks of a double-dip economic recession.
"Alcoa and CSX are core industrial companies that had
nothing but good things to say, making it harder to find
evidence of this double-dip recession we were worried about,"
said James Meyer, chief investment officer at Tower Bridge
Advisors in West Conshohocken, Pennsylvania.
World stocks measured by the MSCI All-Country World Index
<.MIWD00000PUS> rose 1.55 percent, while the the FTSEurofirst
300 <> index of top European shares jumped 1.74 percent
to, in its sixth consecutive session of gains.
The benchmark European stock index closed at a three-week
high, with financial stocks among the top gainers. The STOXX
Europe 600 banking index <.SX7P> rose 2.17 percent.
The Dow Jones industrial average <> rose 160 points, or
1.57 percent, to 10,377.21, shortly after midday, while the
Standard & Poor's 500 Index <.SPX> gained 16.20 points, or 1.50
percent, at 1,095.28. The Nasdaq Composite Index <> was up
35.75 points, or 1.64 percent, at 2,236.26.
Alcoa's shares rose 1.9 percent. The U.S. earnings season
continues in full force on Tuesday, with tech bellwether Intel
Corp's <INTC.O> report after the market closes.
TRADE DEFICIT WEIGHS ON DOLLAR
The U.S. dollar was also weaker against a basket of major
currencies, with the U.S. Dollar Index <.DXY> down 0.86 percent
after government data showed the U.S. trade deficit widened
unexpectedly in May. []
The greenback was also down 0.41 percent against the
Japanese currency <JPY=>, at 88.26 yen.
"The dollar is getting hurt across the board today on a
combination of things, including better earnings and a wider
U.S. trade gap," said Brian Dolan, chief strategist at
Forex.com in Bedminster, New Jersey.
The good performance on equity markets also boosted
commodity prices in general, with prices of U.S. crude oil
rising more than 2 percent.
The August crude contract <CLQ0> was up 2.47 percent at
$76.80 per barrel.
U.S. Treasury prices slipped, on the other hand, before a
$21 billion auction of 10-year notes later Tuesday. The
benchmark 10-year U.S. Treasury note <US10YT=RR> was down 10/32
in price, with the yield at 3.1 percent versus Monday's close
of 3.06 percent.
(Additional reporting by Ryan Vlastelica, Burton Frierson and
Steven C. Johnson in New York; Editing by Philip Barbara)
