Global stocks gain on Fed easing outlook

US and European stocks rallied and Treasuries slipped on Tuesday on expectations a German court would not interfere with a euro zone rescue plan and that the Federal Reserve would again ease US monetary conditions.

The Dow industrials closed at the highest level in nearly five years in a lightly traded session before key decisions in Germany and the United States that could give markets a further boost.

The Dow Jones industrial average ended up 69.07 points, or 0.52 percent, to 13,323.36. The Standard & Poor's 500 Index closed up 4.48 points, or 0.31 percent, to 1,433.56. The Nasdaq Composite Index gained 0.50 point, or 0.02 percent, to 3,104.53.

European shares edged higher, with Deutsche Bank leading a rally among euro zone lenders after saying it would not ask shareholders for more cash to strengthen its capital base.

Shares in Germany's top bank rose 4.1 percent in heavy trading as investors were relieved to hear the management would focus instead on cost cuts and asset sales.

The broader FTSEurofirst 300 index ended 0.3 percent higher at 1,107.17 after rebounding in the afternoon, mirroring gains on Wall Street.

Japan's Nikkei average sagged as investors cut their exposure to exporters and riskier stocks, awaiting a ruling from German's constitutional court on the legality of the European bailout fund and the US Federal Reserve policy meeting this week.

The Nikkei dropped 0.7 percent to 8,807.38, but held above its 75-day moving average support level at 8,780.30.

The broader Topix index lost 0.7 percent to 732.26 in very light trade, with volume at just 80 percent of its full daily average for the past 90 days.