By Rodrigo Campos
NEW YORK (Reuters) - Stocks rose sharply on Wall Street and Europe on Tuesday, supported by growing U.S. retail sales, though caution remained ahead of a possible rate increase by the U.S. central bank later in the week, which would be its first in nearly a decade.
The U.S. dollar index advanced the most in two weeks, while U.S. oil jumped more than 1 percent despite a burst of selling after the White House said it would not support a bill to end the ban on crude exports.
Worries about slowing Chinese and global growth and the prospect of higher U.S. borrowing costs have weighed on markets for weeks. However, some expect the Fed to hike rates as a confirmation that the U.S. economy no longer needs supportive measures from the central bank.
Recent data points to "enough downside risks to the outlook for the Fed to justify waiting until October to hike," said Brian Jacobsen, chief portfolio strategist at Wells Fargo (NYSE:WFC) Funds Management in Menomonee Falls, Wisconsin.
"I expect the Fed will stay pat on rates on Thursday, but signal that there will be a press conference after each meeting going forward to put every meeting in play for a hike."
Such a move will shift focus to the October meeting of Fed policymakers, with talk so far having been about the September or December meetings as key for a possible change in policy.
The Dow Jones industrial average rose 270.95 points, or 1.66 percent, to 16,641.91, the S&P 500 gained 29.91 points, or 1.53 percent, to 1,982.94 and the Nasdaq Composite added 66.02 points, or 1.37 percent, to 4,871.78.
The pan-European FTSEurofirst 300 index ended up 0.85 percent and MSCI's gauge of major equity markets globally gained 0.8 percent.
Overnight, Shanghai stocks fell 3.55 percent as growth concerns in the world's second-largest economy linger.
RISK ON, FOR NOW
The Commerce Department said U.S. consumer spending grew at a fairly healthy pace over the past two months, but factory production slipped in August, providing the Fed a mixed economic picture before its policymakers meet this week.
Trading in U.S. Treasuries was thin ahead of the Fed meeting, but prices in the long end of the curve stumbled after the retail sales data and as risk appetite rose.
U.S. 30-year Treasury bonds were last down 2-9/32 in price to yield 3.064 percent, from a yield of 2.946 percent late Monday. Benchmark 10-year Treasury notes were last down 29/32 in price to yield 2.283 percent, from a yield of 2.18 percent late Monday.
The yen, traditionally investors' safe haven of choice in times of turbulence, fell 0.2 percent after rising as much as 0.7 percent earlier. The Bank of Japan held policy steady at the end of a two-day meeting.
The euro gave up about 0.4 percent against the greenback at $1.1273. The dollar index gained 0.36 percent, the most for any day since Sept. 3.
U.S. crude futures prices rose 1.5 percent to $44.64 a barrel while Brent was little changed at $46.31. Copper gained 0.5 percent to $5,335 a tonne.