* US shares rise after airlines merger, economic data
* Lingering Greek debt concern weighs, euro declines
* China move on bank reserve rules adds to uncertainty
* For more on Greek debt crisis, click on []
By Al Yoon and Dominic Lau
NEW YORK/LONDON, May 3 (Reuters) - U.S. stocks rose on
Monday, sparked by improved consumer spending and factory
activity and an airline merger, but global stocks and the euro
fell on skepticism over a debt bailout for Greece.
The U.S. manufacturing and consumer spending data as well
as an unexpectedly rise in construction spending all bode well
for an economic recovery. Factory activity grew at the fastest
pace in nearly six years. For details, see []
UAL Corp <UAUA.O>, parent of United Airlines, will buy
Continental Airlines Inc <CAL.N> for $3.2 billion to form the
world's largest airline, boosting investor sentiment.
[]. An airline index <.XAL> jumped 1.6 percent
Short-term optimism returned to markets after European
countries agreed to an aid package worth 110 billion euro
($146.5 billion) for Greece over the weekend.
The bailout, the biggest ever for a single country, eased
fears of a near-term sovereign debt default, but still needs
parliamentary approvals and leaves open the question of whether
other vulnerable European countries might also need help.
"Consumer spending is recovering and in a broader context,
the leadership in the recovery is transferring to the consumers
from corporations," said Guy Lebas, a fixed-income strategist
at Janney Montgomery Scott in Philadelphia.
"Still the overall arching theme is that there are less
safe-haven bids for Treasuries from the Greece situation," he
added. "There is a first step towards a resolution, but we are
not out of the woods with Greece yet."
The Dow Jones industrial average <> gained 85.10
points, or 0.77 percent, to 11,093.71. The Standard & Poor's
500 Index <.SPX> climbed 7.55 points, or 0.64 percent, to
1,194.24. The Nasdaq Composite Index <> rose 20.52 points,
or 0.83 percent, to 2,481.71.
World stocks measured by MSCI All-Country World Index
<.MIWD00000PUS> cut losses, but the index was still down 0.2
percent.
Europe's FTSEurofirst 300 <> rose 0.2 percent to
1,065.55. Germany's DAX <> increased 0.5 percent while
Spain's IBEX 35 <> fell 0.8 percent. UK and Japanese
markets were closed for a holiday.
Strong quarterly earnings have helped boost equities in
recent weeks. Of the 337 companies in the S&P 500 that have
reported first-quarter results, 78 percent had profits that
topped analysts' expectations, according to Thomson Reuters
Proprietary Research. Nearly three-quarters of European firms
beat market estimates, Thomson Reuters data showed.
In currencies, the euro fell as the Greek bailout removed
the imminent threat of default but failed to dispel fears about
whether the euro zone country would honor new pledges for
drastic wage cuts and tax increases.
Markets were also wary of potential obstacles to the plan,
since countries such as Germany require parliamentary approval
before money can be released. Greece needs the first of the
funds by May 19 to meet a big repayment to creditors.
The FTSE banks index <.FTATBNK> lost 1.3 percent in choppy
trade, shedding initial gains after the European Central Bank
said it would accept all Greek government bonds as security for
loans, even if its credit rating fell further.
More short-term uncertainty was added to markets after
China increased bank reserve requirements in a bid to tame
liquidity and inflationary expectations.
The euro <EUR=> failed to hold initial gains after the
Greek aid deal.
"Most of the news was already priced in, and expectations
were fulfilled. However, it didn't resolve any structural
problems and I would suspect the euro would be 'sell on
rallies'," said Geoffrey Yu, currency strategist at UBS.
The euro declined 0.50 percent against the dollar to
$1.3229. Against the Japanese yen, the dollar <JPY=> rose 0.83
percent to 94.59, and the U.S. Dollar Index <.DXY> gained 0.7
percent to 82.402.
Ten-year Greek bond yields <GR10YT=TWEB> fell to 8.82
percent from 9.58 percent on Friday, and the premium investors
demand to hold them rather than German Bunds declined.
"Implementation risks surrounding the plan remain," said
Nomura rate strategist Charles Diebel. "We do not expect a
sharp compression of Greek yields towards European averages at
present, especially as contagion risks remain. This is a
long-term problem, and the outcome will only be known in the
fullness of time."
Yield spreads for Portugal and Spain debt also narrowed,
although only modestly, and losses in core German Bunds were
contained as markets remained wary that other expensive
measures might be needed to shore up other euro zone
economies.
Portugal successfully bought back 1 billion euros of bonds
expiring this month on Monday, offering reassurance to
investors concerned the country might struggle to redeem its
debt. []
Yields on benchmark 10-year Bunds <EU10YT=RR> rose to 3.06
percent, while 10-year U.S. Treasuries <US10YT=RR> increased
0.04 percentage point to 3.70 percent.
In energy and commodities prices, U.S. light sweet crude
oil <CLc1> rose 43 cents, or 0.5 percent, to $86.58 per barrel,
and spot gold prices <XAU=> rose $8.86, or 0.75 percent, to
$1,187.10.
(Additional reporting by Tamawa Desai, Atul Prakash and
Kirsten Donovan in London, and Richard Leong in New York;
editing by Jeffrey Benkoe)
