A man holding an umbrella is silhouetted as he walks in front of an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar and Nikkei share average in Tokyo, Japan July 14, 2022
A man holding an umbrella is silhouetted as he walks in front of an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar and Nikkei share average in Tokyo, Japan July 14, 2022 Reuters / ISSEI KATO

A global gauge of stocks headed for its biggest one-day percentage gain in nearly a month on Tuesday and the dollar fell for a third straight day as the door opened for the European Central Bank to enact a bigger rate hike than expected this week.

A Reuters report that the ECB was weighing a 50-basis-point rate hike at its Thursday meeting, bigger than the 25-basis-point hike many market participants had priced in, helped put the euro on track for its biggest one-day percentage gain in nearly two months.

Easing expectations that the U.S. Federal Reserve would resort to a 100-basis-point hike at its meeting next week put the U.S. dollar on track for its third straight session of declines after touching a two-decade high last week.

The dollar index fell 0.661%, with the euro up 0.85% to $1.0227.

Stocks on Wall Street advanced in a broad rally, joining their European counterparts, with each of the 11 major S&P sectors climbing as the U.S. corporate earnings season heats up.

But Johnson & Johnson shares lost ground, down 1.57% after posting results that beat expectations but cut its full-year outlook, citing a stronger dollar.

"You've seen expectations for the Fed raising 100 basis points next week come back to 75 basis points, the dollar has weakened a little bit as the ECB is maybe talking about moving rates higher by 50 basis points as opposed to 25 basis points," said Anthony Saglimbene, global market strategist at Ameriprise Financial in Troy, Michigan.

"It's not a surprise that with the dollar coming off, the stock market is performing a little bit better. If recession odds drop over the next couple of months then I would expect the dollar to decline and that would be a tailwind for multinational profits."

The Dow Jones Industrial Average rose 669.83 points, or 2.16%, to 31,742.44 the S&P 500 gained 98.35 points, or 2.57%, to 3,929.2 and the Nasdaq Composite added 333.93 points, or 2.94%, to 11,693.98.

Of the 48 S&P 500 companies that have reported earnings through Tuesday morning, 89.2% have topped expectations, according to Refinitiv data, compared with an 81% beat rate over the past four quarters.

U.S. economic data showed the effect of the Fed's hiking policy, as new U.S. home-building activity fell to a nine-month low in June and permits for new construction projects slipped in a rising mortgage rate environment.

The pan-European STOXX 600 index rose 1.38% and MSCI's gauge of stocks across the globe gained 1.92%.

The STOXX 600 closed at its highest level since June 9, after a report that Russian gas flows to Europe through the Nord Stream 1 pipeline would be restarting on time lessened concerns about an energy supply crunch in the region.

Benchmark 10-year notes last fell 13/32 in price to yield 3.0079%, from 2.96% late on Monday.

Along with the ECB, the Bank of Japan is also scheduled to meet on Thursday, though not much is expected from the extremely dovish central bank.

Crude prices erased early losses to move higher in volatile trading, a day after settling about 5% higher, as the market weighed the possibility of a recession that could weigh on demand against tight supplies.

U.S. crude recently rose 1.32% to $103.95 per barrel and Brent was at $107.33, up 1% on the day.