Rising oil prices bolstered U.S. stocks on Monday while currency and bond investors shrugged off Italian Prime Minister Matteo Renzi's resignation, following voters' rejection of his constitutional reforms.
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U.S. Treasury yields fell in choppy trading on Monday as investors viewed the dramatic bond market selloff following Donald Trump's surprise U.S. presidential win as overdone.
The Italian referendum stoked worries about Italy's political stability and its banking system but financial markets recovered from an initial fright with stocks, euro rebounding and bond yields rising as investors concluded a fallout from Renzi's resignation could be contained.
"The initial reaction was quite negative, but as we have seen recently with other political events, risks will likely be played out over a period of time," said Brian Daingerfield, macro strategist at NatWest Markets in Stamford, Connecticut.
U.S. stocks rose, led by the S&P 500 energy index <.SPNY>, which jumped 1 percent as oil futures rose. The S&P's banking subsector <.SPXBK> erased Friday's losses with a 1.5-percent jump.
Also helping U.S. stocks was data showing U.S. services sector activity hitting a one-year high in November, with a surge in production boosting hiring.
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The Dow Jones industrial average <.DJI> was up 29.84 points, or 0.16 percent, to 19,200.26, the S&P 500 <.SPX> gained 10.06 points, or 0.46 percent, to 2,202.01 and the Nasdaq Composite <.IXIC> added 43.15 points, or 0.82 percent, to 5,298.81.
Benchmark 10-year Treasury note yield <US10YT=RR> was down 0.5 basis point at 2.385 percent, while the 30-year bond yield US30YT=RR was 1 basis point lower at 3.051 percent.
While Italy's 'no' vote was anticipated, the crushing margin of Renzi's defeat - 59 percent to 41 percent - stirred alarm among investors in Italian stock markets.
Milan's main bourse ended down 0.2 percent after falling as much as 2 percent <.FTMIB>. Italian financials shed 2.2 percent <.FTIT8300> as a 5-billion euro rescue plan for Monte dei Paschi di Siena <BMPS.MI> hung by a thread.
European markets took some encouragement from a sound defeat in Austria's presidential election of a far-right candidate by a pro-European despite forecasts of a tight race.
Peter Cardillo, chief market economist at First Standard Financial in New York, said that the euro's strength will likely not be sustainable as speculators look to profit from political instability in Italy as it decides on its next Prime Minister.
"The victory in Austria by the green party may have lent support for the euro," he said. "This calm before the storm will shortly be challenged by another wave of speculation."
The euro rose 1 percent against the dollar to levels not seen since Nov. 15. It had hit a 20-month low of $1.0503 <EUR=> earlier in the day. The dollar index, <.DXY>, which tracks the greenback against a basket of six global peers, was down 0.7 percent at 100.03.
Europe's FTSEuroFirst index of leading 300 shares <.FTEU3> ended up 0.6 percent and Germany's DAX <.GDAXI> rose 1.6 percent.
In oil futures, Brent crude <LCOc1> continued its rally after last week's historic OPEC production. It rose above $55 a barrel for the first time since July last year before paring gains to trade up 32 cents at $54.78. West Texas Intermediate (WTI) crude <CLc1> traded down 12 cents, at $51.56 a barrel.
(Additional reporting by Richard Leong in New York, Jamie McGeever in London; Editing by Catherine Evans and Nick Zieminski)