* European stocks surge to 28-month high
* Euro gains as demand, German data foster bullishness
* Oil slips on reports of higher OPEC output, pipeline up
* Bonds fall to session lows, erase early gains
(Updates with European markets' close, prices, adds byline)
By Manuela Badawy and Herb Lash
NEW YORK, Jan 18 (Reuters) - The euro rose sharply against
the dollar on Tuesday on sovereign fund buying and a surge in
German investor sentiment, while European stocks hit a 28-month
high on optimism about strengthening a euro zone rescue fund.
The euro rose more than 1 percent against the dollar after
the ZEW think tank in Germany said about 50 percent of
investors now expect the European Central Bank will have to
raise interest rates within the next six months. For details
see: []
ZEW's monthly index jumped in December to its highest level
since July. []
The euro rose as high as $1.3467 on trading platform EBS
and was last trading up 0.80 percent at $1.3396 <EUR=EBS>.
European shares hit their highest close in more than 28
months as euro zone finance ministers moved closer to improving
a rescue fund and investor confidence grew in Germany's
economy, Europe's largest.
The FTSEurofirst 300 <> index of top European shares
ended 0.9 percent higher at 1,167.59 points. Spanish banks were
among gainers, with Banco Santander <SAN.MC> up 4.1 percent
and BBVA <BBVA.MC> 5.4 percent higher.
European finance ministers moved towards beefing up the
euro zone's rescue fund and preparing new stress tests for the
region's shaky banks. []
"Clearly the fact that finance ministers are meeting and
heads of state are going to meet in March indicates that they
are taking the (euro zone debt) problem more seriously than
three months ago," said Richard Batty, strategist at Standard
Life Investments in Edinburgh.
"There is some movement towards a resolution, though it is
a very long process. The market is giving some form of benefit
of the doubt to that process."
The Dow industrials rose and other Wall Street indices were
little changed after disappointing Citigroup <C.N> results
weighed on financial stocks and Apple <AAPL.O> Chief Executive
Steve Jobs took a medical leave of absence.
The Dow Jones industrial average <> was up 58.01
points, or 0.49 percent, at 11,845.39. The Standard & Poor's
500 Index <.SPX> was down 0.44 point, or 0.03 percent, at
1,292.80. The Nasdaq Composite Index <> was up 0.08 point
at 2,755.38.
World stocks as measured by MSCI <.MIWD00000PUS> advanced
0.49 percent, with the emerging markets index <.MSCIEF> gaining
0.44 percent.
The dollar was down against a basket of major currencies,
with the U.S. Dollar Index <.DXY> off 0.36 percent at 79.052.
Against the Japanese yen, the dollar <JPY=> was up 0.05 percent
at 82.76.
Oil <CLc1> fell 0.11 percent to $91.44 per barrel after the
International Energy Agency said members of the Organization of
Petroleum Exporting Countries had been quietly raising output
and the oil producing group insisted the market was amply
supplied. [] Deliveries through a key North
American supply route, the Trans-Alaskan pipeline, commenced.
U.S. government bonds fell after a large sale of long-dated
debt.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 13/32, with the yield at 3.3817 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 1/32, with the yield at
0.5967 percent. The 30-year U.S. Treasury bond <US30YT=RR> was
down 24/32, with the yield at 4.582 percent.
Gold rose for a second day, drawing strength from a weaker
dollar and demand from key Asian consumers. []
Spot gold prices <XAU=> rose to $1,364.80 an ounce.
Copper rose as the dollar fell and European equities surged
on signs of improving economic growth, which suggests better
prospects for industrial metals demand.
Overnight in Asia, Japan's Nikkei <> closed up 0.15
percent, while MSCI's index for Asian shares outside of Japan
<.MIAPJ0000PUS> rose 0.6 percent.
(Reporting by Julie Haviv, Richard Leong, and Caroline
Valetkevitch in New York, Brian Gorman in London; Writing by
Manuela Badawy; Editing by Kenneth Barry)
