European stocks rise for second day

European stocks shrug off local debt woes, while traders look forward to Bernanke speech. But European stocks are expected to remain volatile.

Stocks rose around the world on Tuesday as investors shrugged off indicators pointing to more economic troubles in Europe and the U.S. and hoped the Federal Reserve will act to keep the U.S. from sliding back into recession.

Trading is expected to remain volatile this week as markets await a key speech by U.S. Federal Reserve Chairman Ben Bernanke during an annual economics conference in Wyoming on Friday.

The Fed already pledged to maintain its super-low interest rates until at least 2013, but some economists are calling for a third round of massive bond-buying to pump money into the faltering U.S. economy.

European stocks ended the day in positive territory, although gains on the major indexes were less pronounced than earlier in the day. Britain's FTSE 100 rose 0.7 percent to 5,129.4 points. Germany's DAX and France's CAC-40 both gained 1.1 percent to 5,532.3 and 3,084.3, respectively.

Wall Street traders were also in an optimistic mood, with the Dow Jones Industrial Average rising 1.7 percent to 11,042.6 and the broader S&P 500 adding 2 percent to 1,146.8.

The increase — the second in a row for most major indexes — came despite negative economic indicators both in the U.S. and in Europe, signaling how high hopes have risen on new action from the Fed.

Figures published by the U.S. Commerce Department showed that the number of Americans who bought new homes fell for the third straight month in July, putting them on track to finish this year as the worst since records began half a century ago.

Sales of new homes fell nearly 1 percent in July to a seasonally adjusted annual rate of 298,000. The figures underline how high unemployment and the plunging stock markets in recent weeks are deterring consumers from making big investments.

Economic indicators published in Europe, meanwhile, showed that failing efforts to resolve the eurozone debt crisis are cutting into economic activity and sentiment in the currency union's core.

Markit's composite purchasing managers index for the eurozone was unchanged at 51.1 in August, signaling stagnation in the manufacturing sector and hardly any growth in the services sector.

While analysts at Capital Economics had expected the index to deteriorate further from its 22-month low in July, they warned that "the index is still dangerously close to recession territory."

Output in Germany expanded at its weakest rate since the eurozone's largest economy began to recover two years ago, the index showed.

A key survey of economic sentiment brought more bad news out of Germany. The ZEW survey showed that investor expectations for the next six months are at their lowest level since December 2008, dropping to minus 37.6 points from minus 15.1 in July, below the indicator's historical average of 25.9 points.

Germany, which weathered the financial crisis much better than most other developed nations, has seen its stellar growth slow amid increased worries about the cost of bailing out weak eurozone nations.

Investors are getting more concerned about a second rescue package for Greece, as the currency union's 17 members remain locked in discussions about a Finnish deal to get cash collateral for its loan contributions. Similar requests from other nations could eat into the promised €109 billion in loans and delay crucial changes to the eurozone's rescue fund.

Earlier in the day, Asian markets closed higher, tracing gains on Wall Street Monday.

Japan's Nikkei 225 rose 1.2 percent to close at 8,733.01, and Hong Kong's Hang Seng gained 2 percent to 19,875.53. South Korea's Kospi jumped 3.9 percent to 1,772.39.

Benchmarks in Singapore, Taiwan, India, Indonesia and the Philippines were also higher.

Chinese shares advanced for the first time in six trading sessions as investors sought bargains following the release of a survey suggesting better than expected manufacturing data for August.

The benchmark Shanghai Composite Index rose 1.5 percent 2,554.02 and the Shenzhen Composite Index added 1.8 percent to 1,144.05. Shares in cement and other building materials led the gains.

In commodities markets, oil prices inched up as traders scaled back expectations that Libyan oil would be quickly restored to world markets as fighting raged in Tripoli between rebels and forces loyal to Gadhafi.

Benchmark oil for September delivery was up 13 cents at $84.55 a barrel in electronic trading on the New York Mercantile Exchange. In London, Brent crude for October delivery rose 78 cents per barrel at $109.14 on the ICE Futures exchange.

Gold prices, meanwhile, slipped 0.3 percent to $1,886, after breaching $1,890 for the first time Monday as investors moved their money into so-called save-haven assets.

The euro rose 0.5 percent to $1.442, while the dollar weakened 0.4 percent to 76.57 yen.