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NEW YORK (Reuters) - Stock markets around the world rose on Tuesday and the yen hit a seven-year low as news of a snap election and a delayed tax increase in Japan bolstered hopes for new stimulus measures a day after data showed the country was back in recession.
Wall Street got additional lift from merger deals, rises in healthcare issues and benign U.S. inflation data, with the S&P 500 and Dow Jones industrial average closing at new highs.
Japan's currency fell through 117 yen to the U.S. dollar, a low last touched in October 2007, but recovered some as the dollar declined against the euro and other major currencies,
Oil prices dropped again, with Brent under $79 a barrel.
Investors also cheered a better-than-expected reading of German investor and analyst sentiment, which pointed to a more positive outlook for Europe's No. 1 economy.
The MSCI index of world stocks was up 0.7 percent.
On Wall Street, the Dow Jones rose 0.23 percent to a record closing high of 17,687.82, while the S&P 500 ended higher for a fourth straight session and was at a new all-time peak. The S&P health care index was up 1.6 percent.
Japanese Prime Minister Shinzo Abe's call for parliament to be dissolved on Friday is seen as likely to bring more measures to stimulate growth.
The yen fell against the dollar after Abe's comments, extending recent losses in the wake of stimulus measures announced by Japan's central bank. But some investors later unwound positions, putting dollar/yen at 116.88 yen.
The euro rose as high as $1.2545 and core euro zone bond yields climbed after the German survey.
"The first rise all year in German investor optimism helped ignite a short-covering rally for the euro," said market analyst Joe Manimbo of Western Union Business Solutions in Washington.
The dollar index was off 0.4 percent.
U.S. Treasury debt prices edged higher after a core inflation measure showed just a tepid rise in prices last month, affirming expectations the Federal Reserve will take its time raising interest rates.
Benchmark 10-year U.S. Treasury notes were last up 5/32 in price to yield 2.32 percent, from 2.34 percent late Monday.
German Bund yields hovering near record lows have weighed on Treasuries. The German 10-year was last up 0.035 in price, yielding 0.798 percent.
Brent crude oil fell well below $79 a barrel as traders tested OPEC's willingness to agree on a coordinated output cut.
Brent crude, which traded above $115 as recently as June, was down 91 cents to $78.40 per barrel while U.S. crude lost $1.30 to $74.34.
Additional reporting by Gertrude Chavez-Dreyfuss, Barani Krishnan and Karen Brettell in New York; Editing by Dan Grebler and James Dalgleish