By Neanda Salvaterra and Leslie Josephs
U.S. stocks rose Tuesday as investors looked ahead to key economic data and the prospect of additional stimulus from the European Central Bank.
The Dow Jones Industrial Average gained 107 points, or 0.6%, to 17827. The S&P 500 rose 0.6%, while the Nasdaq Composite Index added 0.6%.
The rebound follows Monday's modest retreat. Major U.S. indexes have stuck to a narrow range in recent weeks ahead of meetings of the ECB this week and the Federal Reserve later in December. Friday's payrolls data on the U.S. could offer further clues on the Fed's course.
"The big thing this week is going to be Friday's jobs data," said Kent Engelke, chief economic strategist at Capitol Securities Management.
Stocks pared early gains after a key gauge of U.S. manufacturing showed that activity in the sector unexpectedly fell into contraction territory for the first time in three years. The Institute for Supply Management's index declined to 48.6 in November from 50.1 in October, its lowest level since 2009. Economists surveyed by The Wall Street Journal expected the index to edge up to 50.5.
The S&P's industrial and materials indexes lagged the broader market.
European stocks reversed earlier gains. The Stoxx Europe 600 fell 0.2%. For November, the pan-European index gained 2.7% as investors bet the ECB would further loosen monetary policy at its meeting on Dec. 3.
More stimulus from the ECB is likely to boost markets, although the impact may be smaller than before, according to Nick Nelson, head of global equity strategy at UBS in London.
"Investors are waiting for Thursday for more clarity from the ECB. That's the current mood of the markets," he said.
Shares got a boost from downbeat Chinese manufacturing data, which raised concerns about the strength of the Chinese economy while lifting hopes for easier monetary policy. The Shanghai Composite Index edged up 0.3%.
Japan's Nikkei Stock Average gained 1.3% to close above the 20,000 mark for the first time since August. Hong Kong's Hang Seng Index rose 1.8%, while Australia's S&P/ASX 200 climbed 1.9% after its central bank kept rates on hold.
In currencies, the euro gained 0.4% against the dollar at $1.0606, while the dollar slipped 0.4% against the yen at Yen122.89. The onshore Chinese yuan was mostly steady after the International Monetary Fund gave it reserve-currency status on Monday.
In commodities, U.S. crude oil fell 1% to $41.33 a barrel, while gold was largely unchanged at $1,065.10 a troy ounce.
Banking shares rose in Europe after The Bank of England said it would ease pressure on U.K. banks to hold more capital. Shares in Lloyds Banking Group climbed 2.4%, Barclays rose 4.6%, and Royal Bank of Scotland Group gained 2.7%.
Looking ahead, investors are waiting for comments from Fed Chairwoman Janet Yellen, who is slated to speak Wednesday and Thursday, and the U.S. jobs report on Friday, which is expected to show 205,000 jobs were added last month.
On Tuesday, eurozone data confirmed a pickup in activity for the manufacturing sector--the purchasing managers index rose to 52.8 in November from 52.3 the previous month.
While the ECB is expected to further ease policy this week, the U.S. Federal Reserve is widely expected to raise interest rates for the first time in nearly a decade.
"The fact they'll be taking different routes--the ECB loosening, the Fed tightening--is a given; what markets need now is guidance on how fast they'll be traveling and how far they'll end up going," said Neil Williams, group chief economist at Hermes Investment Management.
Lisa Beilfuss contributed to this article.
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