Dow, S&P 500 hit record highs on greater risk tolerance

By Sam Forgione

NEW YORK (Reuters) - Major U.S. stock indexes set record intraday highs on Tuesday as optimism about the world economy and upbeat corporate results from Alcoa boosted risk appetite, while European shares rose for the fourth straight day.

The benchmark S&P 500 hit 2,155.40, topping Monday's intraday record high by more than 12 points, while the Dow Jones industrial average rose to 18,371.95 to top its previous record intraday high touched in May 2015. The tech-heavy Nasdaq Composite also gained, wiping out its losses for the year.

Increasing prospects of global economic health boosted shares, while Alcoa (AA.N) reported a smaller-than-expected drop in quarterly profit, sending the aluminum producer's shares up more than 5 percent and helping boost optimism about the earnings season.

Investors' appetite for equities has increased after robust economic data, including a stronger-than-expected U.S. jobs report for June last Friday, and low yields on government bonds. Easing political uncertainty in Britain and Japan has reduced some global uncertainties.

The FTSEurofirst 300 and STOXX Europe 600 (.STOXX) indexes ended higher for a fourth straight session and notched their highest closes since Britain voted on June 23 to leave the European Union. Gains in shares of Italian banks helped fuel the rise, with UniCredit (CRDI.MI) ending up more than 13 percent.

"There are no good alternatives, from an income standpoint, to the U.S. equity markets at this point, and that's driving the momentum today," said Bill Northey, chief investment officer at Private Client Group of U.S. Bank. "But we need to see some supporting earnings growth to accompany this move."

MSCI's all-country world equity index was last up 3.62 points, or 0.89 percent, at 408.5.

The Dow Jones industrial average (.DJI) was last up 119.81 points, or 0.66 percent, at 18,346.74. The S&P 500 (.SPX) was up 15.54 points, or 0.73 percent, at 2,152.7. The Nasdaq Composite (.IXIC) was up 34.82 points, or 0.7 percent, at 5,023.46.[nL4N19Y4HT]

Europe's broad FTSEurofirst 300 index (.FTEU3) closed up 1.14 percent, at 1,330.46.

Oil prices surged almost 5 percent, handing U.S. and benchmark Brent crude prices their largest daily percentage gains in more than three months, as investors' covering of short positions and a technical rebound helped lift the market off two-month lows.[nL4N19Y163]

Brent crude (LCOc1) settled up $2.22, or 4.80 percent, at $48.47 a barrel. U.S. crude (CLc1) settled up $2.04, or 4.56 percent, at $46.80.

Safe-haven assets such as U.S. Treasuries, the Japanese yen and gold fell in price. Benchmark 10-year Treasury yields, which move inversely to prices, hit a 1-1/2-week high of 1.531 percent.

Yields rose as expectations of new stimulus in Japan boosted stocks and reduced demand for safe-haven bonds, and ahead of this week's new supply. [nL1N19Y1O4]

"Some of the uncertainty, ‘flight-to-quality’ type of unknown bid is leaving the markets," said Tom Tucci, head of Treasuries trading at CIBC in New York.

The U.S. dollar hit its highest in more than two weeks against the yen (JPY=) of 104.97 yen on the global risk appetite and anticipation of more Japanese stimulus. Gold (XAU=) posted its biggest one-day fall in three weeks.

(Additional reporting by Vikram Subhedar in London, Yashaswini Swamynathan in Bangalore and Karen Brettell and Richard Leong in New York; Editing by Nick Zieminski and James Dalgleish)