By Al Yoon and Dominic Lau
NEW YORK/LONDON (Reuters) - U.S. stocks rose on Monday, sparked by improved consumer spending and factory activity and an airline merger, but global stocks and the euro fell on skepticism over a debt bailout for Greece.
The U.S. manufacturing and consumer spending data as well as an unexpectedly rise in construction spending all bode well for an economic recovery. Factory activity grew at the fastest pace in nearly six years.
Short-term optimism returned to markets after European countries agreed to an aid package worth 110 billion euro ($146.5 billion) for Greece over the weekend.
The bailout, the biggest ever for a single country, eased fears of a near-term sovereign debt default, but still needs parliamentary approvals and leaves open the question of whether other vulnerable European countries might also need help.
"Consumer spending is recovering and in a broader context, the leadership in the recovery is transferring to the consumers from corporations," said Guy Lebas, a fixed-income strategist at Janney Montgomery Scott in Philadelphia.
"Still the overall arching theme is that there are less safe-haven bids for Treasuries from the Greece situation," he added. "There is a first step toward a resolution, but we are not out of the woods with Greece yet."
The Dow Jones industrial average <.DJI> gained 85.10 points, or 0.77 percent, to 11,093.71. The Standard & Poor's 500 Index <.SPX> climbed 7.55 points, or 0.64 percent, to 1,194.24. The Nasdaq Composite Index <.IXIC> rose 20.52 points, or 0.83 percent, to 2,481.71.
World stocks measured by MSCI All-Country World Index <.MIWD00000PUS> cut losses, but the index was still down 0.2 percent.
Europe's FTSEurofirst 300 <.FTEU3> rose 0.2 percent to 1,065.55. Germany's DAX <.GDAXI> increased 0.5 percent while Spain's IBEX 35 <.IBEX> fell 0.8 percent. UK and Japanese markets were closed for a holiday.
Strong quarterly earnings have helped boost equities in recent weeks. Of the 337 companies in the S&P 500 that have reported first-quarter results, 78 percent had profits that topped analysts' expectations, according to Thomson Reuters Proprietary Research. Nearly three-quarters of European firms beat market estimates, Thomson Reuters data showed.
In currencies, the euro fell as the Greek bailout removed the imminent threat of default but failed to dispel fears about whether the euro zone country would honor new pledges for drastic wage cuts and tax increases.
Markets were also wary of potential obstacles to the plan, since countries such as Germany require parliamentary approval before money can be released. Greece needs the first of the funds by May 19 to meet a big repayment to creditors.
The FTSE banks index <.FTATBNK> lost 1.3 percent in choppy trade, shedding initial gains after the European Central Bank said it would accept all Greek government bonds as security for loans, even if its credit rating fell further.
More short-term uncertainty was added to markets after China increased bank reserve requirements in a bid to tame liquidity and inflationary expectations.
The euro failed to hold initial gains after the Greek aid deal.
"Most of the news was already priced in, and expectations were fulfilled. However, it didn't resolve any structural problems and I would suspect the euro would be 'sell on rallies'," said Geoffrey Yu, currency strategist at UBS.
The euro declined 0.50 percent against the dollar to $1.3229. Against the Japanese yen, the dollar rose 0.83 percent to 94.59, and the U.S. Dollar Index <.DXY> gained 0.7 percent to 82.402.
Ten-year Greek bond yields fell to 8.82 percent from 9.58 percent on Friday, and the premium investors demand to hold them rather than German Bunds declined.
"Implementation risks surrounding the plan remain," said Nomura rate strategist Charles Diebel. "We do not expect a sharp compression of Greek yields toward European averages at present, especially as contagion risks remain. This is a long-term problem, and the outcome will only be known in the fullness of time."
Yield spreads for Portugal and Spain debt also narrowed, although only modestly, and losses in core German Bunds were contained as markets remained wary that other expensive measures might be needed to shore up other euro zone economies.
Portugal successfully bought back 1 billion euros of bonds expiring this month on Monday, offering reassurance to investors concerned the country might struggle to redeem its debt.
Yields on benchmark 10-year Bunds rose to 3.06 percent, while 10-year U.S. Treasuries increased 0.04 percentage point to 3.70 percent.
In energy and commodities prices, U.S. light sweet crude oil rose 43 cents, or 0.5 percent, to $86.58 per barrel, and spot gold prices rose $8.86, or 0.75 percent, to
(Additional reporting by Tamawa Desai, Atul Prakash and Kirsten Donovan in London, and Richard Leong in New York; editing by Jeffrey Benkoe)