Global stocks, dollar gain as Fed sees improving economy

By Herbert Lash NEW YORK (Reuters) - Global equity markets rose on Wednesday, lifted by strong U.S. and European corporate earnings and a Federal Reserve statement that said the U.S. economy continues to strengthen, adding to expectations an interest rate hike is getting closer. Fed officials said they felt the U.S. economy had overcome a first-quarter slowdown and was "expanding moderately" despite a downturn in the energy sector and headwinds from overseas. The Fed left its key interest rate, which has remained near zero for almost a decade, unchanged as expected. The Fed has said it will raise rates once it sees a sustained recovery. "The Fed is taking baby steps towards a rate hike," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. "The Fed is doing a good job getting people ready for a rate hike before year's end, making it likely to be a low-impact event," he said. Advancing issues listed on the New York Stock Exchange outnumbered declining ones by almost 3 to 1, while Nasdaq-listed advancing issues slightly outnumbered declining issues. With more than half of second-quarter results now reported, analysts expect overall earnings of S&P 500 companies to edge up 0.8 percent and revenue to decline 3.9 percent, according to Thomson Reuters data. Shares of General Dynamics hit a record high, gaining 3.9 percent after the company said it saw a rebound in demand for its Gulfstream business jets. The shares led a sector-wide rally for major aerospace stocks. The Dow Jones industrial average <.DJI> closed up 121.12 points, or 0.69 percent, to 17,751.39. The S&P 500 <.SPX> added 15.32 points, or 0.73 percent, to 2,108.57 and the Nasdaq Composite <.IXIC> gained 22.53 points, or 0.44 percent, to 5,111.73. MSCI's all-country world stock index <.MIWD00000PUS> rose 0.67 percent, while the FTSEurofirst index <.FTEU3> of leading European shares closed up 1.02 percent at 1,561.48. In Europe, carmaker Peugeot reported first-half net income for the first time in four years, boosting its shares 6 percent. Oil major Total posted higher-than-expected second-quarter profits, and rose 2.6 percent. Merger activity also lifted shares, with Italcementi surging 49 percent and HeidelbergCement falling 6 percent after its takeover offer. The dollar rose 0.28 percent at 123.90 yen , while the euro was down 0.64 percent at $1.0987. Higher U.S. Treasuries yields also supported the greenback, with the two-year yield rising to 0.7038 percent. The benchmark 10-year U.S. Treasury note fell 9/32 in price to yield 2.2823 percent. Oil prices reversed early losses and rose after weekly data showed an unexpectedly large drawdown in U.S. crude inventories. Data from the U.S. Energy Information Administration showed crude stocks fell by 4.2 million barrels last week, more than twenty times analysts' expectations for an decrease of 184,000 barrels. Front-month Brent futures rose 8 cents to settle at $53.38 a barrel. U.S. crude for September delivery settled 81 cents higher at $48.79. (Reporting by Herbert Lash; Editing by Nick Zieminski and Meredith Mazzilli)