Earnings, tax announcement hopes boost equities

By Chuck Mikolajczak

NEW YORK (Reuters) - Global stock markets rallied for a second straight day on Tuesday, as solid U.S. earnings, speculation about U.S. tax reform and reduced chances of a U.S. government shutdown this weekend boosted investor optimism.

Wall Street gained as concerns about France's election waned and investors cheered earnings from Dow components such as McDonald's Corp (MCD.N), up 5.6 percent, and Caterpillar Inc (CAT.N), up 7.9 percent. The Nasdaq Composite index closed above the 6,000 mark for the first time.

"It’s earnings coming from the Dow companies, the largest of the large, in particular Caterpillar, really driving on the theme that U.S. corporate profitability is on track to really provide some significant year-over-year earnings growth," said Peter Kenny, senior market strategist at Global Markets Advisory Group, in New York.

"That in and of itself is a fantastic story."

Markets also built on the boost from the prior session in the wake of the first round of the French election, with recent opinion polls showing centrist Emmanuel Macron, who won with a comfortable lead over far-right, anti-EU candidate Marine Le Pen, winning a May 7 run-off vote.

Safe-haven assets such as gold and the Japanese yen retreated, while the yield gap between French and German short-term government bonds, a closely watched measure of political risk in the euro zone, hit its lowest in almost three months. (DE2FR2=RR).

Investor focus shifted to corporate earnings and U.S. President Donald Trump's promise to announce "a big tax reform and tax reduction" on Wednesday.

The threat of a U.S. government shutdown this weekend appeared to recede on Tuesday after Trump backed away from a demand that Congress include funding for his planned border wall with Mexico in a spending bill.

The Wall Street Journal reported that Trump's plan will include a sharp cut in the top tax rate on pass-through businesses, including many small business partnerships and sole proprietorships, to 15 percent from 39.6 percent.

The Dow Jones Industrial Average (.DJI) rose 232.23 points, or 1.12 percent, to close at 20,996.12, the S&P 500 (.SPX) gained 14.46 points, or 0.61 percent, to 2,388.61 and the Nasdaq Composite (.IXIC) added 41.67 points, or 0.7 percent, to 6,025.49.

The pan-European FTSEurofirst 300 index (.FTEU3) rose 0.21 percent and MSCI's gauge of stocks across the globe gained 0.63 percent after touching a high of 456.42.

French shares (.FCHI) closed up 0.2 percent, after a 4.1 percent surge on Monday, their biggest daily gain since August 2012.

The euro (EUR=) added to Monday's gains against the dollar, up 0.63 percent to $1.0935.

The Canadian dollar (CAD=) fell 0.6 percent to C$1.3583 per U.S. dollar after the United States announced duties averaging 20 percent on Canadian softwood lumber imports.

The Japanese yen weakened 1.22 percent versus the greenback at 111.10 per dollar (JPY=).

Gold, also seen as a safe-haven asset, fell. Spot gold (XAU=) dropped 0.9 percent to $1,263.47 an ounce. U.S. gold futures (GCcv1) fell 0.98 percent to $1,265.00 an ounce.

Oil prices edged up in volatile trading to snap a six-day losing streak, ahead of U.S. crude inventory data forecast to show a drawdown.

U.S. crude (CLcv1) settled up 0.67 percent at $49.56 a barrel and Brent (LCOcv1) settled up 0.97 percent at $52.10.

(Additional reporting by Rodrigo Campos; Editing by Richard Chang and James Dalgleish)