An improvement in German economic expectations and a well-received Spanish Treasury auction helped to strengthen the euro against the dollar and kept Spanish government bond yields steady.
Market participants were also cheered by what appeared to be softening of Spain's stance toward requesting a bailout from the European Union.
Toward the middle of the European session, the euro was at $1.3013 from $1.2949 late Monday in New York, having pushed as high as $1.3016 following Germany's data.
Earlier, the Center for European Economic research, also known as ZEW, said German economic expectations increased in October.
"The good news is that sentiment seems to have bottomed out in the late summer, but the recovery path has just started and a solid improvement is not expected near term," said economist Annalisa Piazza at Newedge commenting on the data.
Meanwhile, Spain's borrowing costs edged down from last month at its short-term debt auction Tuesday.
Spain sold €4.863 billion ($6.29 billion) in 12- and 18-month Treasury bills, above the upper end of the €3.5 billion to €4.5 billion target range. The average yield on the 12-month bills was 2.823%, a touch below the previous comparable auction. Spain's 10-year government bond yield was at 5.81%, up just 0.02 percentage point.
The well-received auction came as a senior Spanish finance ministry official said late Monday that Madrid was considering a request for a line of credit from the EU's new bailout mechanism.
Spain's IBEX-35 advanced 1.2%. The benchmark Stoxx 600 index rose 0.4%. The U.K.'s FTSE 100 index added 0.5%, Germany's DAX advanced 0.7% and France's CAC-40 was 0.5% higher. Greece's ASE Composite index gained 0.3% and Italy's FTSE Mib added 0.5%.
Earnings news was a mixed bag Tuesday. Pharmaceutical firm Roche Holding ROG.VX +0.33% gained after reporting that sales for the third quarter rose 15% from a year ago, coming in ahead of forecasts.
LVMH Moët Hennessy Louis Vuitton MC.FR -1.09% dropped after it reported that third-quarter sales increased 6% from the year-earlier period. This marked a slowdown from the 10% and 14% growth rates posted in the second and first quarters, respectively.
Engineering group GKN GKN.LN -3.78% reported third-quarter pretax profit of £99 million ($159.1 million), compared with £100 million in 2011, citing the challenging European automotive and industrial environment.
Focus now turns to Goldman Sachs GS +3.45% and technology heavyweights IBM IBM +0.54% and Intel, INTC +1.15% which release their earnings Tuesday as the reporting season gets into full swing.
Among other asset classes, November Nymex crude oil futures were $0.08 lower at $91.77 a barrel and the December Brent oil contract was flat at $114.40. Spot gold rose $1.20 to $1,739.80 a troy ounce. December Bunds were down 22 ticks to 141.33 as investors found cheer outside traditional havens.
