U.S. stocks extend rally, Treasury yields dip on solid earnings, economic data

U.S. stocks surged and Treasury yields eased as earnings surprised to the upside and robust factory data fueled investors' risk appetite.

All three major U.S. stock indexes have pared since bursting through the starting gate, but remain on course to extend Monday's broad rally.

"There’s a lot of skepticism and the market often moves against the entrenched view," said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York. "Whether the markets have touched the bottom, we’ll only be able to tell through the rearview mirror."

"Historically markets have performed well in a recession when they are anticipating the end of it," Ghriskey added.

Better than expected quarterly results from Goldman Sachs Group Inc and Johnson & Johnson set the tone, with robust industrial output data helping to sooth recession worries as central banks around the world tighten monetary policy in order to contend with decades-hot inflation.

The afterglow of new British finance minister Jeremy Hunt's financial policy reversal was also supporting upbeat investor sentiment.

"It shows global central banks are willing to change if the market tells them they’re doing something wrong," Ghriskey said.

The Dow Jones Industrial Average rose 422.32 points, or 1.4%, to 30,608.14, the S&P 500 gained 48.11 points, or 1.31%, to 3,726.06 and the Nasdaq Composite added 132.32 points, or 1.24%, to 10,808.13.

European shares also extended their rally, fueled by optimism over Britain's fiscal policy U-turn. [.EU]

The pan-European STOXX 600 index rose 0.67% and MSCI's gauge of stocks across the globe gained 1.23%.

Emerging market stocks rose 1.40%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.51% higher, while Japan's Nikkei rose 1.42%.

Treasury yields slid, echoing moves in UK and European bonds, as moves by the British government to stabilize its bond market have helped calm anxieties. [US/]

Benchmark 10-year notes last rose 5/32 in price to yield 3.9942%, from 4.015% late on Monday.

The 30-year bond last fell 6/32 in price to yield 4.0276%, from 4.015% late on Monday.

The British pound dipped after surging nearly 2% on Monday, which helped boost the greenback against a basket of world currencies.

The dollar index rose 0.22%, with the euro down 0.08% to $0.983.

The Japanese yen weakened 0.09% versus the greenback at 149.15 per dollar, while sterling was last trading at $1.1294, down 0.52% on the day.

Crude prices dropped on fears of higher U.S. stockpiles and signs of waning global demand. [O/R]

U.S. crude fell 3.65% to $82.34 per barrel and Brent was last at $89.35, down 2.48% on the day.

The easing dollar helped support gold prices.