Global appetite for risk grows

Stocks rose globally and the euro edged up against the US dollar after Abu Dhabi's decision to throw neighbour Dubai a $10 billion lifeline to repay its debts boosted the appetite for riskier assets.

Gold prices rose and copper prices firmed on news that Dubai had averted a debt default, which pressured the dollar and boosted higher-yielding currencies such as the euro.

Oil prices hovered at break-even after falling for eight consecutive sessions as gains in stocks worldwide boosted economic optimism and countered concerns about brimming inventories.

Abu Dhabi's move initially prompted investors to sell the dollar and push up equities on improved risk appetite, in contrast to last week, when strong U.S. economic data boosted risk-taking to the benefit of the dollar.

Stocks gained on relief that Abu Dhabi's lifeline would help Dubai avoid default, while a takeover deal by energy giant Exxon Mobil fed optimism about recovery in the M&A market.

Both the MSCI all-country world index and the broad Standard & Poor's 500 Index climbed to hover just below levels last seen 14 months ago.

European shares rose for a third straight session to hit a one-week closing high, with regional financial shares advancing after Dubai said it had received funding to help repay $4.1 billion in an Islamic bond maturing on Monday.

U.S. stocks were also helped by a deal from Citigroup to pay back U.S. government funds.

But lingering worry over debt woes elsewhere capped euro gains and investors were cautious ahead of a meeting of Federal Reserve policy-makers this week that may provide clues about how the Fed - the U.S. central bank - intends to exit its current ultra-loose monetary policy.

"Abu Dhabi helped risk-taking overnight and that hurt the dollar but we're at an interesting point heading into the Fed meeting," said Dan Cook, senior analyst at IG Markets in Chicago.

"(Fed Chairman Ben) Bernanke has said rates will stay low, but people are starting to think the Fed at some point will have to consider raising them," Cook said.

The Dow Jones industrial average was up 32.27 points, or 0.31 percent, at 10,503.77. The Standard & Poor's 500 Index .SPX was up 7.63 points, or 0.69 percent, at 1,114.04. The Nasdaq Composite Index was up 19.05 points, or 0.87 percent, at 2,209.36.

In Europe, the FTSEurofirst 300 index of top regional shares ended 0.8 percent higher at 1,018.29.

The inter-bank cost of borrowing dollars and euros held near record lows as the market prepared for the Fed's statement on interest rates and the final chance to get cheap one-year money from the European Central Bank.

Crude oil pared losses after Abu Dhabi bailed out Dubai.

U.S. light sweet crude oil CLc1 fell 7 cents to $69.80 a barrel. Brent crude LCOc1 was up 28 cents at $72.16.

Crude's eight straight sessions of losses matched a slump in October 2003 and is the longest such streak since a nine-day slide in July 2001.

"I think what is driving up crude is the strong stock market, especially with the big news from Dubai overnight," said Phil Flynn, analyst at PFGBest Research in Chicago.

U.S. Treasury debt prices were mostly steady as bargain-hunting offset a drop in safe-haven bids for bonds following Abu Dhabi's $10 billion lifeline.

Most euro zone government bond prices pushed higher on year-end buying, while Greek government bonds were hit as its government struggled to tackle its deficit.

The dollar was down against a basket of major currencies, with the U.S. Dollar Index .DXY down 0.38 percent at 76.279.

The euro was up 0.27 percent at $1.4661, and against the yen, the dollar was down 0.63 percent at 88.49 yen.

Spot gold prices XAU= rose $9 to $1,123.50 an ounce.

- Reuters