U.S. stocks rallied on Monday as upbeat economic data from China spurred the S&P 500 higher for a fifth straight day, while bonds rallied and oil prices fell on diverging outlooks on the possibility of a Western strike against Syria.
The dollar fell against most major currencies as debate persisted over when, and by how much, the U.S. Federal Reserve would begin to reduce its bond-buying program. Most economists think the Fed will announce a cut in bond purchases when it meets next week, a Reuters poll showed on Monday.
The White House continued to work on persuading Congress to approve a military strike to punish Syrian President Bashar al-Assad, with oil prices falling on perceptions that there was less chance of an imminent strike. But lingering worries that there will be U.S. military action drove a safety bid for U.S. Treasuries.
Benchmark 10-year notes were last up 10/32 in price. Their yields eased from two-year highs to 2.91 percent, down from 2.94 percent on Friday.
U.S. stocks rallied after upbeat Chinese export data lessened concern about a sharp slowdown in China, the world's second biggest economy. The Nasdaq ended at its highest level since September 2000.
"Even if you are skeptical of Chinese data, this fits a pattern of global demand turning the corner, inching higher," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
The Dow Jones industrial average .DJI rose 140.31 points or 0.94 percent, to 15,062.81, the S&P 500 .SPX gained 16.51 points or 1 percent, to 1,671.68 and the Nasdaq Composite .IXIC added 46.173 points or 1.26 percent, to 3,706.183.
"There's good news from developed economies and U.S. fundamentals are good," said Doug Cote, chief market strategist at ING Investment Management in New York, with $190 billion in assets under management. "U.S. companies delivered year-over-year earnings growth in the second quarter while establishing a new record for quarterly earnings per share."
The upswing in Chinese exports lifted other world equity markets as well.
The MSCI emerging equities index .MSCIEF rose 1.8 percent to a three-week high. It has rallied about 4 percent in the last four trading sessions, helped by the stronger Chinese data.
The MSCI world equity index .MIWD00000PUS gained 1.99 percent for a sixth successive daily rise.
European shares, however, slid as disruptions to business in the Middle East hurt oil firm BG Group (BG.L) and the threat of a spike in crude prices fueled profit-taking on construction firm Bouygues (BOUY.PA).
The broad FTSE Eurofirst 300 index .FTEU3 was 0.15 percent lower, though it is still up 6.4 percent since the start of July, more than twice as much as the U.S. S&P 500 .SPX..
The dollar slipped against most major currencies on Monday amid the continued debate over how soon the Fed would taper its stimulus program following the disappointing U.S. jobs report for August last week.
But the dollar rose against the yen, which lost ground as Japanese stocks rallied after Tokyo won its bid to host the 2020 Olympics and got an upgrade of second-quarter economic growth.
Better-than-expected euro zone sentiment data lifted the euro. The euro rose 0.61 percent against the dollar, while the dollar gained 0.48 percent against the yen. The dollar index was down 0.44 percent on Monday, extending Friday's 0.6 percent drop .DXY.
Expectations the Fed would announce a tapering of its monthly bond purchases at its September 17-18 policy meeting have buoyed the dollar lately and are still largely responsible for the 2.8 percent gain in the dollar index this year. A reduction in stimulus will lift U.S. Treasury yields and bolster the appeal of dollar-denominated assets.
While the euro was supported by the positive Sentix sentiment data, investors kept a wary eye on Rome, where the Italian Senate will debate whether to expel former premier Silvio Berlusconi from parliament. Such an expulsion could threaten the country's ruling coalition.
The dollar rose against the yen. The Olympics win for Tokyo could boost the Japanese economy and contribute to Prime Minister Shinzo Abe's efforts to inflate the economy after decades of sub-par growth and deflation. The Tokyo bid committee estimated hosting the Olympics could boost the economy by 3 trillion yen ($30 billion) over the next seven years.
The news sent the Nikkei .N225, to a five-week high while the yen, which has an inverse correlation with Tokyo shares, slipped. The yen is a safe-haven currency and tends to move in the opposite direction to riskier assets like stocks. Japanese stocks were also helped by a sharp upward revision of second-quarter growth data.
The dollar hit a high of 100.10 yen earlier on Monday. The euro rose 1.1 percent to 132.06 yen.
Both the dollar and the euro have gained more than 14 percent this year against the yen as the Bank of Japan embarked on a massive monetary stimulus program in April.
"The Olympics bid has added a bit more to the underlying negative yen trend," said Paul Robson, currency strategist at RBS Global Banking.
Meanwhile, the Australian dollar hit a three-week high at $0.9233, benefiting from the Chinese trade data. China is Australia's biggest export market. The Aussie last stood at $0.9232, up 0.53 percent. It barely reacted to Saturday's national election result.
China publishes industrial production and retail sales numbers on Tuesday, which should add to signs the economy is on track to hit its target of 7.5 percent growth this year.
Oil markets looked past the Chinese data to focus on Syria. Russia and China again urged the United States to avoid military action ahead of a key vote by the U.S. Senate.
The global Brent crude benchmark fell $3 to $113.12. U.S. oil lost $1.62 cents to $108.91. <O/R>
The U.S. Treasury will sell $65 billion in new three-year, 10-year and 30-year bonds this week.