Global stock markets rose on Tuesday as U.S. stocks were boosted by news of yet another possible merger that suggested there is still room to the upside, while a pick-up in German economic sentiment supported European stocks.
The S&P 500 Index .SPX, hovering near a five-year high, extended its seven-week winning streak. The benchmark index is already up more than 7 percent for the year.
Office Depot Inc (ODP.N), the No. 2 U.S. office supply retailer, and smaller rival OfficeMax Inc (OMX.N) are said to be in advanced merger talks.
A deal would be the latest addition to more than $158 billion in U.S. deals announced thus far in 2013. Last week, Berkshire Hathaway (BRKa.N) and a partner agreed to acquire H.J. Heinz Co (HNZ.N), and General Electric (GE.N) sold its remaining stake in NBCUniversal to Comcast Corp (CMCSA.O).
"Deals are good for the market," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago. "The fact that they're being done is a positive."
European shares rebounded on Tuesday from three days of losses, with stronger-than-expected German sentiment data prompting investors to return to sectors like autos and technology.
Optimism that the worst of the euro zone debt crisis is over has helped German investor and analyst sentiment soar to its highest level in nearly three years this month.
In the currency market, the yen climbed after two days of losses. Japanese Finance Minister Taro Aso said he was not considering foreign bond purchases.
Further boosting the U.S. market, Google shares (GOOG.O) hit an all-time high of $807.00. The stock closed up 1.8 percent at $806.85.
Office Depot rose 9.4 percent to $5.02 and OfficeMax shares jumped 21 percent to $13.00. Shares of larger rival Staples Inc (SPLS.O) shot up 13 percent to $14.65.
MSCI's world equity index .MIWD00000PUS rose 0.8 percent, though markets have been falling for two weeks since a big run-up in January.
The Dow Jones industrial average .DJI ended up 53.91 points, or 0.39 percent, at 14,035.67. The Standard & Poor's 500 Index .SPX was up 11.15 points, or 0.73 percent, at 1,530.94. The Nasdaq Composite Index .IXIC gained 21.56 points, or 0.68 percent, at 3,213.59.
The pan-European FTSEurofirst 300 index .FTEU3 provisionally closed up 1.1 percent at 1,171.73 - more than recovering the previous three sessions' losses.
The yen rose against the dollar and euro as disagreement between Japanese officials raised doubts over how aggressively Japan will ease its monetary policy.
Japanese Finance Minister Taro Aso said on Tuesday he was not considering buying foreign bonds as part of efforts to ease monetary policy, a day after Prime Minister Shinzo Abe said this was an option.
Expectations Japan will take further stimulative steps to fight deflation have driven the dollar up 8 percent versus the yen this year. But the pace of the yen's fall has slowed lately as investors wait to see if words will translate into action.
"The comments suggested that there may be growing differences between the prime minister and the finance minister, which could threaten the pace of policy easing going forward," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.
The dollar fell 0.4 percent to 93.53 yen, well below a peak of 94.22 yen hit on Monday after Japan escaped direct criticism from its G20 peers the weekend.
Choi Hee Nam, director-general of South Korea's finance ministry, said that while Japan was not singled out at this weekend's Group of 20 meeting, its monetary and fiscal policies that have weakened the yen were not endorsed by the group and did spark controversy, according to Bloomberg News.
The euro was down 0.1 percent at 125.27 yen. Against the dollar, the euro rose 0.3 percent to $1.3391.
Europe's shared currency also rose sharply against sterling, gaining 0.6 percent to 86.78 pence on growing speculation that the UK could lose its triple-A credit rating.
The dollar index, meanwhile, slipped 0.1 percent to 80.464, still within striking distance of the 80.727 .DXY six-week high hit on Monday.
U.S. government debt prices fell on Tuesday as gains in the stock market reduced the appeal of safer but low-yielding bonds, though worries over possible federal spending cuts and the outcome of the upcoming Italian election limited losses.
On below-average volume, benchmark 10-year Treasury notes last traded 7/32 lower in price for a yield of 2.03 percent, up 2.5 basis points from Friday. The 10-year yield has been bouncing in a 20-basis-point range in the past three weeks.
Oil prices rose on Tuesday as traders grew bullish amid a rally in U.S. stock markets, even as U.S. pipeline bottlenecks and European economic concerns threatened to weigh on oil markets.
Brent for April rose 14 cents to $117.52 a barrel, tracking U.S. futures higher in afternoon trade, after earlier falling more than 80 cents a barrel on European economic concerns.
U.S. crude for March delivery rose 80 cents to settle at $96.66 a barrel. The March contract expires on Wednesday.