By Emelia Sithole-Matarise
LONDON - European shares rallied on Tuesday with a key index hitting a six-year highs as a strong performance in U.S. equities and upbeat updates from some blue-chip companies boosted appetite for riskier assets.
The dollar and Asian shares rose earlier after the Dow (.DJI) and the S&P 500 (.SPX) closed at record peaks on Monday, led by a rebound in pummeled internet and biotech stocks on the back of strong corporate results and an improving economic outlook (.N).
Indian markets led Asian shares higher on expectations an election victory for the nationalist opposition BJP party, viewed as business-friendly, would spur a revival in the region's third biggest economy.
The run of positive corporate news continued in Europe, with Germany's ThyssenKrupp (TKAG.DE) raising its full-year earnings outlook on Tuesday, while aerospace group Airbus Group (AIR.PA) posted a narrower-than-expected drop in core earnings and reaffirmed its financial goals for the year.
The pan-European FTSEurofirst 300 (.FTEU3) index rose 0.2 percent to 1,367.60 points, its highest level since May 2008. Britain's FTSE (.FTSE) was up 0.2 percent after briefly hitting its highest point in roughly a year.
Sentiment was also supported by the European Central Bank's clearest signal yet last week that it was poised to ease monetary policy further next month to support the economic recovery. Investors were also focused on Germany's ZEW monthly sentiment poll for its reading of the euro zone's biggest economy.
"We are still slightly long (stocks) going into the ZEW, as sentiment for stocks has markedly improved over the last couple of days," said Markus Huber, senior sales trader at Peregrine and Black.
"Expectations that the ECB will act soon in a decisive manner to fight low inflation and the rise of the euro seem to outweigh worries that potentially further and much harsher economic sanctions could be imposed on Russia soon," he said.
He was referring to rising tensions between Western countries and Russia over Ukraine. Global equity markets have so far brushed off a weekend referendum in which pro-Moscow rebel organizers said nearly 90 percent had voted in favor of self-rule.
The rebound in global equities and a slew of euro zone debt sales halted a recent rally in lower-rated euro zone government bonds.
German 10-year yields, the benchmark for euro zone borrowing, were slightly up at 1.47 percent with traders keeping a close eye on a speech later in the day by the head of the German central bank.
Jens Weidmann is known for his hardline stance at the ECB and any comment that differs from ECB President Mario Draghi's guidance last week could increase uncertainty over June's meeting, hurting peripheral bonds.
Markets showed limited reaction to industrial production and retail sales data from China, which were roughly in line with forecasts.
The dollar edged up to brush a one-week high of 102.33 yen, helped by higher U.S. Treasury yields on investor caution ahead of a slew of data this week that could paint a brighter economic picture.
The euro stabilized near one-month lows against the dollar, as the recent selloff abated before the ZEW survey, which might show some improvement in morale in Europe's biggest economy. Still, any rebound would probably be shortlived given the ECB outlook.
It climbed to $1.3770, away from its one-month low of $1.3745 hit on Friday, having shed 1.2 percent since Draghi said the bank was ready to take action next month.
"The main worry for the ECB is inflation, and if there is any improvement in the ZEW, it will not be a game changer," said Yujiro Goto, currency strategist at Nomura.
"We see the euro trading with a downward bias given the market is expecting some kind of easing from the ECB next month. It is still not clear whether it will do quantitative easing, but a rate cut is more likely."
(Additional reporting by Francesco Canepa and Anirban Nag; Editing by John Stonestreet)