By Ishaq Siddiqi
European stock markets finished higher Tuesday, as investors breathed a sigh of relief that euro-zone finance ministers have agreed in principle to Greece's second bailout and were comforted by encouraging economic data from both sides of the Atlantic.
The Stoxx Europe 600 index ended up 1.8%, at 269.56. The U.K.'s FTSE 100 index ended 1.1% higher, at 5955.91, and Germany's DAX index rose 1.4%, to 6995.91, while France's CAC-40 index finished 1.7% higher, at 3550.16.
Elsewhere, Spain's IBEX 25 index gained 2.4%, to 8376.80, Portugal's PSI 20 index rose 1.6%, to 5659.38, and Greece's ASE Composite added 0.1%, to 734.88.
Gains were driven by Eurogroup ministers having discussed the authorization of the first tranche of Greece's second bailout program Monday. The meeting resumed Tuesday, with the focus turning on Spain as euro-zone finance ministers gave the country a new official 2012 budget-deficit target of 5.3%, up from a previous level of 4.4%, in an effort to make the country get its public spending under control.
Along with Spain, the focus of the market has been shifting to Portugal. Analysts at Morgan Stanley said investors are trying to determine whether the Greece bailout represented "an effective firewall or whether market pressures will now just shift more towards the perceived next weakest country."
Lifting spirits further in Europe was data out from Germany, which showed the national ZEW survey beat market expectations in March. The data showed the ZEW's economic-expectations index rose sharply, to +22.3, from February's unrevised +5.4, and compared with expectations for a reading of +10.0.
This is the highest reading since June 2010. "Today's ZEW index adds to recent encouraging signals from the German economy," said Carsten Brzeski at ING Bank. "In fact, after the summer slowdown, almost all leading indicators have been on the rise since November."
On Wall Street Tuesday, stocks rose after firm readings on domestic retail sales and small-business optimism. Late in Europe, the Dow Jones Industrial Average gained 0.8%, to 13068, while the Standard & Poor's 500-stock index advanced 0.9%, to 1382.
Data showed that sales at U.S. retailers grew at the fastest pace in five months in February, as spending increased at auto dealerships, gas stations and clothing stores. U.S. business inventories also rose slightly more than expected in January.
Separately, the National Federation of Independent Business's index of small-business optimism rose for the sixth-straight month, to the highest level since December 2007. Investors will now cast their attention to the Federal Open Market Committee, as the U.S. Federal Reserve's policy-setting panel released a statement on monetary policy at around 1815 GMT.
Earlier, Asian bourses also rallied, with China's Shanghai Composite advancing 0.9%, to 2455.79. Japan's Nikkei Stock Average lagged behind, with a 0.1% gain, to 9899.08, after the Bank of Japan didn't announce measures to aid the economy.
Among stocks, Munich Re closed up 2.6% in Frankfurt, after saying it's off to a good start for 2012 and is aiming for profit around EUR2.5 billion ($3.3 billion). The company posted a profit of EUR712 million in 2011.
Veolia Environnement gained 3.7% in Paris, after the water utilities firm secured a contract valued at EUR387 million in India.
In currency markets, the euro was unable to hold on to gains against the dollar and came under selling pressure. Many investors remained cautious ahead of the much-awaited FOMC meeting, while concerns about Spain also weighed. By late Europe, the single currency was at $1.3109 against the dollar, from $1.3155 late Monday in New York, while the dollar was at Y82.68, from Y82.23.
Elsewhere, the U.K. pound was at $1.5732 from $1.5643. Earlier, data showed the U.K. goods trade deficit widened to GBP7.5 billion in January from GBP7.2 billion, and compared with expectations for GBP7.9 billion. The figures also showed exports to non-European Union countries rose to the highest level since records began.
"Although the U.K. trade deficit widened in January, the big picture is that the external sector is still holding up quite well given the euro-zone debt crisis," said Capital Economics. "But with the euro-zone economy sliding into recession, we doubt that this will last."
Among commodities, light, sweet crude for April delivery was up 83 cents, at $107.17 on the New York Mercantile Exchange. Gold for April delivery was down $2.40, at $1,697.40 per troy ounce late in Europe on the Comex division of Nymex.
--Sara Sjolin contributed to this article.