By Chuck Mikolajczak
NEW YORK (Reuters) - A global gauge of stocks notched its biggest one-day percentage gain in nearly a month on Tuesday and the dollar weakened for a third straight day as expectations grew for the European Central Bank to enact a bigger rate hike than expected this week.
A Reuters report that the ECB was weighing a 50-basis-point rate hike at its Thursday meeting, double the hike many market participants had priced in, helped put the euro on track for its biggest one-day percentage gain in nearly two months.
Easing expectations that the U.S. Federal Reserve would resort to a 100-basis-point hike at its meeting next week put the dollar on track for its third straight session of declines after touching a two-decade high last week.
The dollar index fell 0.661%, with the euro up 0.81% at $1.0223.
"We are now seeing a subtle but meaningful shift in the outlook for trans-Atlantic monetary policy, and that's proving a good thing for the euro," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
Wall Street stocks rallied broadly, joining their European counterparts, with each of the 11 major S&P sectors climbing as the U.S. corporate earnings season heats up.
But Johnson & Johnson shares fell 1.46% after posting results that beat expectations but cut its full-year outlook, citing a stronger dollar.
"You've seen expectations for the Fed raising 100 basis points next week come back to 75 basis points. The dollar has weakened a little bit as the ECB is maybe talking about moving rates higher by 50 basis points as opposed to 25 basis points," said Anthony Saglimbene, global market strategist at Ameriprise Financial in Troy, Michigan.
"It's not a surprise that with the dollar coming off, the stock market is performing a little bit better. If recession odds drop over the next couple of months then I would expect the dollar to decline and that would be a tailwind for multinational profits."
The Dow Jones Industrial Average rose 754.44 points, or 2.43%, to 31,827.05 the S&P 500 gained 105.72 points, or 2.76%, at 3,936.57 and the Nasdaq Composite added 353.10 points, or 3.11%, at 11,713.15.
The Nasdaq notched its biggest one-day percentage gain since June 24 while the S&P 500 closed at its highest level since June 9.
Of the 48 S&P 500 companies that have reported earnings through Tuesday morning, 89.2% have topped expectations, according to Refinitiv data, compared with an 81% beat rate over the past four quarters.
U.S. economic data showed the effect of the Fed's hiking policy, as new U.S. home-building activity fell to a nine-month low in June and permits for new construction projects slipped in a rising mortgage rate environment.
The pan-European STOXX 600 index rose 1.38% and MSCI's gauge of stocks across the globe gained 2.05%. The MSCI index scored its biggest one-day percentage gain since June 24.
The STOXX 600 closed at its highest since June 9, after a report that Russian gas flows to Europe through the Nord Stream 1 pipeline would be restarting on time eased concerns about a regional energy supply crunch.
Benchmark 10-year notes last fell 17/32 in price to yield 3.0209%, from 2.96% late on Monday.
Along with the ECB, the Bank of Japan is also scheduled to meet on Thursday, though the extremely dovish central bank is expected to maintain its stance.
Crude prices erased early losses to move higher in volatile trading, a day after settling about 5% higher, as the market weighed the possibility of a recession that could weigh on demand against tight supplies.
U.S. crude settled up 1.58% at 104.22 per barrel and Brent settled at $107.35, up 1.02% on the day.
(Additional reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis, Mark Heinrich and Richard Chang)