Stocks rally after losing streak as China fears dwindle

NEW YORK (Reuters) - U.S. and European stocks rose on Tuesday, and were on track to snap five-day losing streaks as investors focused on earnings and mergers news and looked past another fall in Chinese equities.

Prices of safe-haven government bonds eased, while the dollar rallied on growing expectations the Federal Reserve could take a hawkish bias toward raising interest rates in a policy statement due on Wednesday. Oil prices turned up on hopes U.S. crude stockpiles were shrinking.

Wall Street's Dow Jones industrial average <.DJI> was up 128.01 points, or 0.73 percent, to 17,568.6 in midday New York trade, the S&P 500 <.SPX> gained 18.45 points, or 0.89 percent, to 2,086.09 and the Nasdaq Composite <.IXIC> added 32.60 points, or 0.65 percent, to 5,072.38.

United Parcel Service shares jumped 5.2 percent and Ford gained 2 percent after each reported better-than-forecast profits.

Merger news helped lift European stocks, with the FTSEuroFirst 300 index of leading European shares closing up 1.1 percent at just under 1,546 points <.FTEU3>.

RSA Insurance Group jumped 18 percent after Zurich Insurance said it was considering a bid for the British group.

Shares in Kering , meanwhile, surged 5.6 percent after Gucci, the flagship brand of the French luxury and sportswear group, posted a 4.6 percent rise in underlying second-quarter sales.

"The market has been preoccupied with uncertainties related to China in the last couple of days, but those concerns are taking a back seat today and equities are getting some support from company earnings and M&A," said Gerhard Schwarz, head of equity strategy at Baader Bank in Munich.

The main China indexes fell again, although by nowhere near as much as Monday's 8.5 percent plunge. The Shanghai market benchmark <.SSEC> closed 1.7 percent lower.

The Fed kicked off a two-day policy meeting. No immediate change in interest rates is expected, so attention centered on whether Fed Chair Janet Yellen would signal September or December as the most likely date for a rate increase.

Oil bounced up from near six-month lows, as bets for a drop in U.S. crude stockpiles offset worries about a global supply glut and equity market meltdown in China. [O/R]

Brent was up 10 cents, or 0.2 percent, at $53.57 a barrel after hitting $52.28, the lowest since early February.

The price of copper , heavily influenced by demand from key consumer China, recovered from Monday's six-year low and was up 2.3 percent at $5,306 a tonne on the London Metal Exchange.

In currency markets, the dollar rose against many of its key rivals, including the euro and yen, as traders bet that the first U.S. rate hike in almost a decade is still likely to come in September.

The euro fell 0.4 percent at $1.1045 , after on Monday touching a two-week high of $1.1129. The dollar was up 0.35 percent against the yen at 123.66 yen .

Bond yields edged higher, with the 10-year U.S. Treasuries off 7/32 in price and yielding 2.2553 percent . The comparable UK yield rose a basis point, while the yield on the 10-year German Bund was also up 1 basis point.

(Additional Reporting by Jamie McGeever; and Lionel Laurent; Editing by Meredith Mazzilli and David Gregorio)

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