World stocks turn higher despite eurozone strains

World stocks and the euro rose on Tuesday amid hopes of more stimulus measures from the US Federal Reserve and despite strains on Spain and poor investor sentiment in Germany.

At around 1600 GMT, European and US equities shrugged aside Asian indices that mostly closed lower as the leaders of the world's major economies embarked on the final day of the G20 summit determined to kickstart world growth.

The gains followed a successful Spanish bond auction and was fueled by hopes that the US Federal Reserve would move to boost the world economy during two days of meetings that began Tuesday.

But traders were still betting on Greece exiting the European single currency region despite weekend elections that saw Greece's two main pro-austerity parties win enough votes to form a government.

In a further blow to the eurozone, a survey revealed that German investor confidence plummeted in June, sustaining its steepest fall in nearly 14 years on growing concerns about Spain's banking system.

Spain succeeded in raising 3.04 billion euros ($3.8 billion) in a short-term debt sale on Tuesday but its borrowing costs soared.

At close, London's benchmark FTSE 100 index finished the day up by 1.73 percent at 5,586.31 points.

In Frankfurt, the DAX 30 rallied 1.84 percent to 6,363.36 points, while in Paris the CAC 40 rose by 1.69 percent to 3,117.92 points.

In Madrid the Ibex 35 IBEX-35 climbed 2.67 percent to 6693.9 points, while in Milan the FTSE Mib index soared 3.35 percent.

In the US, the Dow Jones Industrial Average rose 0.95 percent, while the S&P 500 was up 1.09 percent and the Nasdaq was up 1.26 percent.

In Asia, Tokyo's stock market closed down 0.75 percent, Sydney shed 0.33 percent and Hong Kong ended the day unchanged.

"The intensifying crisis in the euro-zone coupled with signs that the US economic recovery is faltering have led to speculation that the Fed will provide more monetary stimulus at the FOMC meeting," said Paul Ashworth from Capital Economics.

He referred to the Fed's Open Market Committee, the central bank's decision-making body.

"We don't expect the FOMC to launch a major new round of large-scale asset purchases at this meeting (QE3), although it is possible that its Maturity Extension Programme (Operation Twist), which is due to finish at the end of this month, could be extended for another few months," he added.

Meanwhile, a financial source said that a detailed audit of Spain's stricken banks, which is to follow a first examination due by Thursday, had been delayed to September from late July.

It is the second of two audits ordered for the banks, many of which are struggling with balance sheets heavily exposed to a property bubble that collapsed in 2008.

Spain's government won agreement on June 9 for its eurozone partners to extend a rescue loan of up to 100 billion euros to salvage the crisis-hit banks.

In foreign exchange deals, the euro rose to $1.2690 from $1.2571 late on Monday in New York. The dollar fell to 78.95 Japanese yen from 79.11 yen on Monday.

On the bond markets, borrowing prices for Spain and Italy dropped, but were still near levels that traders said would push the countries towards a full blown bailout.

In Spain, the yields on benchmark 10-year bonds stood at 6.999 in late trading, compared with 7.117 late on Monday.

Anything over 7.0 percent is considered unsustainable and is the point above which Ireland, Portugal and Greece were forced into asking for their rescue packages.

Madrid is struggling with a banking crisis in addition to a miserable financial situation with soaring unemployment and a huge fiscal deficit.

Italian 10-year bonds carried a yield of 5.902 percent, down from 6.067 percent on Monday.