Global shares and euro gain as hopes for economy rise

NEW YORK (Reuters) - Global shares rose to their highest in almost two months and the euro gained versus the dollar on Tuesday after German investor sentiment improved sharply in December and on expectations the Federal Reserve will keep pumping money into the U.S. economy.

The dollar weakened as investors steered clear of the U.S. currency ahead of the Fed's two-day meeting that will begin later in the day. U.S. Treasury prices fell as gains in stocks eroded safe-haven demand for government debt.

Morale among German analysts and investors improved sharply in December, jumping to 6.9 against expectations of -12.0, fanning hopes that Germany, Europe's largest economy, will avoid recession this winter.

The unexpected improvement in German data helped lift Wall Street. The Nasdaq led the advance as investors picked up some recent laggards, including Apple. The company's shares have been beaten down recently, partly as investors book profits before a possible rise in capital gains taxes next year.

Weaker stocks are drawing buyers in hopes of a market turn around next year, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

"I doubt there's going to be a lot of conviction based on volume when everything is said and done at the end of the day," said Sheldon.

The Dow Jones industrial average <.DJI> gained 110.34 points, or 0.84 percent, to 13,280.22. The Standard & Poor's 500 Index <.SPX> rose 12.62 points, or 0.89 percent, to 1,431.17. The Nasdaq Composite Index <.IXIC> added 40.84 points, or 1.37 percent, to 3,027.80.

The lack of progress in negotiations about the U.S. "fiscal cliff" has kept investors from making aggressive bets in recent weeks, though most expect a deal will eventually be reached.

While the pace of talks in Washington to avert impending U.S. tax hikes and spending cuts quickened, senior politicians on both sides cautioned that an agreement on all the outstanding issues remained uncertain.

The FTSEurofirst 300 index <.FTEU3> posted its highest close since May 2011, provisionally closing up 0.4 percent at 1,139.17 points. The MSCI global stock index <.MIWD00000PUS> hit its highest level since October 19 and was last up 0.7 percent at 337.27 points.

The U.S. central bank is expected to announce a new round of Treasury securities purchases at the end of its meeting on Wednesday, according to a Reuters poll. The program would replace its "Operation Twist" stimulus, which expires at the end of the year.

Many economists believe the Fed will announce monthly bond purchases of $45 billion, although some think it could be more.

"We anticipate the Fed will announce Treasury purchases, and as that depresses yields, it will have a negative impact on the dollar and that supports the euro," said Jane Foley, senior currency strategist at Rabobank.

Expectations of more easing drove the dollar index <.DXY> down 0.3 percent and pushed the Canadian dollar to a two-month high, while the New Zealand dollar hit a nine-month high of $0.8369.

The euro rose 0.5 percent to $1.2999, while against the yen the dollar was little changed at 82.34 yen.

Markets had been rattled on Monday by Italian Prime Minister Mario Monti's announcement he would step down some weeks early. But the upbeat ZEW data helped lift shares and the euro from their gloom.

Benchmark 10-year Treasury notes were trading 10/32 lower in price to yield 1.6524 percent, the highest in over a week and up from 1.63 percent late Monday. Investors were also pushing for price concessions heading into $66 billion of U.S. government debt auctions this week.

In the oil market, Brent crude rose 66 cents to $107.98 a barrel after OPEC said its production declined in November, while the weaker dollar and Middle East unrest also supported prices.

U.S. crude gained 27 cents to $85.83.

Gold was steady near $1,708 an ounce, with more U.S. stimulus expected to support gold's appeal as a hedge against inflation.

(Additional reporting by Leah Schnurr and Nick Olivari in New York and Marc Jones in London; Editing by Leslie Adler)