Stocks rise, government debt falls after U.S. data

By Herbert Lash

NEW YORK (Reuters) - Global equity markets rose and U.S. Treasuries prices fell on Tuesday after a gauge of U.S. consumer spending rose more than expected in December, indicating the world's largest economy is poised for stronger growth this year.

The U.S. Commerce Department said retail sales - excluding automobiles, gasoline, building materials and food services - increased 0.7 percent last month after a 0.2 percent rise in November.

Economists polled by Reuters had expected core retail sales to gain 0.3 percent in December. The increase suggested consumer spending accelerated in the fourth quarter, the latest sign of strong U.S. economic momentum at the end of last year.

The retail sales data was the first major economic indicator since Friday's labor market report for December, which showed job growth that was sharply below expectations.

"The retail sales are painting a better economic backdrop than payrolls did, and investors are using recent weakness as an opportunity to buy," said Mike Gibbs, co-head of the equity advisory group at Raymond James in Memphis, Tennessee.

A stronger U.S. economy could lead the Federal Reserve to quicken the pace of dialing back its stimulus, a move equity markets have generally disliked. The stimulus was considered a major driver of a 29.6 percent gain in the S&P 500 last year.

The gains have driven the forward price-to-earnings ratio for the benchmark index to near a seven-year high, a reason for its biggest sell-off in two months on Monday, when it fell 1.26 percent.

On Tuesday, both JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N) posted quarterly results that beat expectations. But gains in their stock prices were limited, with Wells near all-time highs and JPMorgan at its highest since 2000. JPMorgan rose 0.07 percent to $57.74, while Wells rose 0.04 percent to $45.58. The S&P financial index advanced 0.78 percent.

"From an economic perspective, the real economy continues to gain traction. But from a market perspective, the stronger the economy looks, the more we need to look and see whether in fact the Fed might be pulling back sooner than people think," said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

The pan-European FTSEurofirst 300 index of leading regional shares closed up 0.15 percent at 1,326.37, while the broader MSCI all-country world index, which tracks shares in 45 countries, rose 0.23 percent, rebounding from early losses.

On Wall Street, the Dow Jones industrial average gained 115.92 points, or 0.71 percent, at 16,373.86. The Standard & Poor's 500 Index was up 19.68 points, or 1.08 percent, at 1,838.88. The Nasdaq Composite Index was up 69.71 points, or 1.69 percent, at 4,183.02.

U.S. Treasuries prices fell. Benchmark 10-year notes were last down 12/32 in price to yield 2.869 percent, up from 2.825 percent late Monday.

German Bund futures settled up 3 ticks at 140.68 euros. Spanish government bond yields dipped to 3.83 percent as data showing the Spanish economy grew at its fastest pace since 2008 in last year's fourth quarter supported demand before debt sales later this week.

The dollar gained against the yen, but traded near break-even against the euro and the dollar index.

The dollar was up 1.15 percent at 104.16 yen, and the dollar index edged up 0.14 percent at 80.627. The euro rose 0.07 percent to $1.3680.

U.S. oil rose as traders squared positions amid signs of strength in the U.S. economy, while Brent fell as incremental increases in Libyan oil supply and expectations that Iranian crude will return to market weighed on prices.

The February Brent crude contract, which expires on Thursday, settled down 36 cents at $106.39 a barrel. U.S. crude settled at $92.59, up 79 cents a barrel.

(Additional reporting by Francesco Canepa in London; Reporting by Herbert Lash; Editing by Dan Grebler and Leslie Adler)