* Global stock index at 3-1/2 month peak
* S&P 500 slips after hitting 4-year intraday high
* Euro rallies to seven-week peak versus dollar
* Spain, Portugal bond yields fall; ECB quells speculation
By Wanfeng Zhou
NEW YORK, Aug 21 (Reuters) - An index of global stocks rose
to a 3-1/2 month high o n T uesday and the euro jumped to a
seven-week peak against the U.S. dollar on hopes the European
Central Bank will soon start buying Spanish and Italian bonds to
contain the debt crisis.
Spanish borrowing costs fell and Portuguese government bond
yields slid to levels seen before Lisbon agreed to
a bailout deal in May 2011, with traders citing media reports
that the ECB was drawing up detailed plans about bond-buying.
The perception of declining risks from the euro crisis has
been a major factor behind stocks' recent gains.
Earlier in the session, the broad Standard & Poor's 500
Index climbed to a four-year intraday high before
surrendering gains to trade in negative territory.
Uncertainty remained high and investors were concerned that
the ECB's requirement that troubled countries ask for help from
the euro zone's rescue funds before turning to the central bank
may mean that the Spanish crisis could get worse before it gets
better. Still, optimism over eventual ECB action bolstered
sentiment.
"The market has moved to the belief that (the ECB) is going
to do whatever it takes," said William Larkin, fixed-income
portfolio manager at Cabot Money Management in Salem,
Massachusetts.
The Daily Telegraph, a British newspaper, supported a report
over the weekend in a German magazine that the ECB planned to
put a hard cap on Spanish and Italian bond yields.
An ECB spokeswoman, asked about the Telegraph story,
referred to the ECB's statement on Monday, when it said it was
misleading to report on policy decisions that had not been made.
The MSCI global share index rose 0.2 percent
to 326.03 after hitting an intraday high at 328.21, its highest
level since early May. The FTSEurofirst 300 index of European
shares gained 0.4 percent to end at 1,109.55.
On Wall Street, the Dow Jones industrial average
declined 73.23 points, or 0.55 percent, to 13,198.41. The
Standard & Poor's 500 Index slipped 5.55 points, or 0.39
percent, to 1,412.58. The Nasdaq Composite Index fell
12.73 points, or 0.41 percent, to 3,063.48.
The S&P 500 has risen 2.4 percent so far in August. Volume
has been light as investors wait for central banks' meetings
next month, where policymakers are expected to take action to
ease Europe's debt crisis and boost the economy.
"I am looking for new highs in the major indexes," said
Wayne Kaufman, chief market analyst at John Thomas Financial in
New York. "Overall, there is no one major negative that's out
there right now that people are scared of."
The MSCI global share index rose 0.2 percent
to 326.03 after hitting an intraday high at 328.21, its highest
level since early May. The FTSEurofirst 300 index of European
shares gained 0.4 percent to end at 1,109.55.
Yields at a Spanish short-term debt auction fell on Tuesday,
while Europe's VSTOXX volatility index hit a one-month
low, signaling a steady rise in investors' appetite for risk.
Spanish 10-year bond yields fell 10 basis
points to 6.24 percent, with shorter-dated yields down as much
16 basis points. Italian bond yields also dropped.
Portuguese 10-year yields fell 30 basis points
for the day to 9.40 percent, the lowest level since April 20.
Portugal's original request for a bailout was on April 6, 2011;
the deal was announced on May 3 of last year.
EURO RALLIES
Financial markets have been on a red-hot run on hopes that
the new urgency in Europe to overcome the 2-1/2-year debt crisis
may let Greece remain in the euro zone and keep the 17-member
bloc from unraveling.
Greek Prime Minister Antonis Samaras will meet German
Chancellor Angela Merkel, French President Francois Hollande and
Eurogroup chief Jean-Claude Juncker in the coming days to try to
secure more help from the European Union, International Monetary
Fund and ECB, even though Greece has fallen behind on its
debt-cut targets.
Samaras is expected to lobby for a two-year extension of
austerity measures to soften their impact, though he is unlikely
to win major concessions.
The euro climbed 1 percent to $1.2466, while the
dollar slipped 0.2 percent to 79.25 yen.
U.S. Treasury debt prices erased losses as the major U.S.
stock indexes gave up earlier gains.
The benchmark 10-year U.S. Treasury note was
little changed in price to yield 1.805 percent.
Brent crude oil rose 94 cents to settle at $114.64 a
barrel. It has jumped from below $90 at the end of June,
propelled higher by maintenance in the North Sea and increased
fear of military conflict between Iran and Israel.
U.S. crude added 71 cents to settle at $96.68 per
barrel.
Gold rallied to a 3-1/2 month high as the U.S. dollar
weakened, while platinum hovered just below a two-month
peak hit in the previous session as concerns over supply from
top producer South Africa festered.
Spot gold hit a high of $1,641.20 an ounce. It was
last at $1,637.70 an ounce.