By Mike Bird

Global stocks rallied Tuesday, the first major trading day of the new year.

The U.S. dollar, government bond yields and oil prices all rose, mirroring the rally that ended 2016. The three assets will likely be a major focus for investors in the coming months.

The Dow Jones Industrial Average climbed 142 points, or 0.7%, to 19905 shortly after the opening bell. The S&P 500 and the Nasdaq Composite gained 0.7%.

The Stoxx Europe 600 index rose 0.7%.

The U.S. dollar strengthened across the board, with the future direction of the greenback a key factor for global markets in the new year, from emerging market debt to European exporters to commodities.

The WSJ dollar index, which is compiled from a basket of international exchange rates, has risen by more than 6% since the Nov. 8 U.S. presidential election.

The Chinese yuan was fixed 0.2% lower against the dollar and the greenback gained 0.7% to 118.1 Japanese yen. The euro fell 0.8% to $1.038.

"We ended the year with nothing to dampen the optimism about the 2017 economic outlook," said Kit Juckes, global head of foreign-exchange strategy Société Générale SA.

"Expectations of easier fiscal policy in the U.S. and more tightening by the Fed are going to be taking the dollar higher," he added.

The U.S. Federal Reserve expects to raise interest rates three times in the next year. Rate increases tend to draw in money looking for higher returns, boosting a local currency.

Analysts are mixed on where the dollar will trade through the year. Analysts at MorganStanley expect another 5% rise for the trade-weighted dollar by the end of 2017, while J.P. Morgan forecasts suggest it will fall by 8%.

European banks -- one of the biggest gainers from the global equity rally at the end of 2016 -- were up by more than 2.6%.

"If the legal liabilities that have plagued banks are nearly over, the Italian banks are in the process of finally getting fixed and capital requirements are close to being met, we could see 2017 as the year of banks globally," said Said Haidar, CEO of Haidar Capital Management, a New York-based hedge fund.

Bank stocks have benefited from raising bond yields, which in turn have benefited as investors anticipate rises in interest rates.

Yields on global sovereign bonds rose, with Germany's 10-year bund yields leading the rise, up to as high as 0.262%, from 0.19% on Monday.

That rise followed regional inflation data from Germany, which showed price pressures building in Europe's largest economy. German harmonized consumer prices rose by 1.7% in the year to December, up from a 1.3% rise in the year to November.

U.S. 10-year Treasury yields also ticked higher, rising to 2.516% from 2.448% Monday.

In commodity markets, Brent crude oil prices reached a 17-month high at $58.37 a barrel on London's ICE Futures exchange, its highest level since July 2015.

A planned cut in oil output, agreed by the Organization of the Petroleum Exporting Countries and other oil producing countries including Russia, begins this month. The countries agreed to cut output by 1.8 million barrels a day or around 2% of global production in 2017.

The rise in oil prices also lifted energy stocks. The Stoxx Europe 600 oil and gas sector ticked up by 1.4% in early afternoon trading.

Asian equity markets rose, with Hong Kong's Hang Seng climbing 0.68% in afternoon trading and South Korea's Kospi index up 0.88%. Japan's Nikkei 225 was closed for a holiday.

Write to Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

January 03, 2017 09:51 ET (14:51 GMT)

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