US stocks rally as data rekindle optimism Tuesday 21:10 GMT. US stocks rebounded from the previous session's sharp losses as the latest data releases helped counter some of the economic uncertainty sparked by last week's disappointing non-farm payrolls report. The S&P 500 rose 1.1 per cent to 1,838, leaving the US equity benchmark back within striking distance of the record high reached at the end of last year. On Monday, the S&P shed 1.3 per cent, its biggest one-day drop since November. The CBOE Vix equity volatility index, Wall Street's so-called "fear gauge," was down more than 8 per cent on Tuesday. "Interestingly, we are now witnessing an environment wherein stronger US activity data, despite implying a continuation of quantitative easing-tapering if sustained, is not necessarily impinging on risk appetite," said Samarjit Shankar, global strategist at Bank of New York Mellon. In Europe, the FTSE Eurofirst 300 reversed a sharp early fall to close 0.2 per cent higher. But Tokyo had a miserable session as Japanese markets got their first chance to react to last week's US jobs numbers after Monday's holiday. The Nikkei 225 tumbled 3.1 per cent, its worst one-day performance in five months. The Nikkei's steep decline followed a sharp rise for the yen against the dollar on Monday. That was more than reversed yesterday, as the US currency shot up 1.1 per cent and regained the Y104 mark. At the start of 2014, the dollar was above Y105 and hovering at levels not seen for more than five years. The firmer dollar helped push gold down $10 to $1,242 an ounce, after the metal earlier touched a fresh one-month high of $1,255. In industrial commodities , copper fell 0.7 per cent to $7,280 a tonne, while Brent crude settled 36 cents lower at $106.39 a barrel. Support for the dollar yesterday came from an encouraging set of US retail sales figures, which helped fuel expectations that the Federal Reserve would continue gradually to reduce, or taper, its monthly asset purchases. Although headline retail sales rose by a relatively modest 0.2 per cent last month, that was ahead of expectations - while core sales, which exclude cars, gasoline and building materials, increased by a more impressive 0.7 per cent. "With consumer confidence improving and the general state of the economy looking in decent shape, notwithstanding the soft payrolls number last Friday, we remain upbeat on consumer spending prospects and look for the US economy to grow by 3 per cent this year and the Fed taper to continue through to the fourth quarter," said James Knightley, an economist at ING. Other US data showed that business inventories rose by 0.4 per cent in November, beating estimates, while October's increase was amended to 0.8 per cent. "We have revised up our forecast for fourth-quarter real GDP growth by 0.5 percentage points to 3.5 per cent quarter-on-quarter, largely reflecting signs of persistently strong inventory accumulation," said Peter Newland, an economist at Barclays. We have not made any revisions to our growth forecasts for 2014, in part because we doubt that such strength in inventory building or consumption will persist. The day's encouraging economic figures triggered a sell-off in US government bonds, with the 10-year Treasury yield up 5 basis points at 2.87 per cent. However, 10-year US borrowing costs remained shy of the 3 per cent-plus levels seen earlier this year, with analysts saying the Fed's "lower for longer" mantra on interest rates should help keep bond yields anchored. Meanwhile, the Bank of England's interest rate guidance was back in focus after news that the rate of UK inflation had fallen to the BoE's target rate of 2 per cent last month. "While we may see some more modest upward pressure from energy prices over coming months as further electricity and gas price increases feed through, headline inflation is unlikely to deviate significantly from the 2 per cent target, further reducing pressure on the MPC to begin tightening policy when its [7 per cent] unemployment threshold is likely reached in coming months," said Grant Lewis at Daiwa Capital Markets. After a choppy day's trading, sterling was up 0.4 per cent against the dollar at $1.6444, while the 10-year Gilt yield rose 2bp to 2.84 per cent. In Germany, the 10-year Bund yield held steady at 1.81 per cent, even as data showed eurozone industrial production in November rising at the fastest pace since mid-2010.