NEW YORK (Reuters) - The yen dropped for a third straight day against the dollar and the euro on Monday as the Bank of Japan began aggressive monetary easing in an attempt to beat persistent deflation, boosting stocks in most markets, with U.S. stocks gaining ahead of an earnings season expected to show modest growth.
The dollar rallied against the yen to its highest level since May 2009, above 99 yen, and the euro touched a three-year peak against the Japanese currency after the BoJ conducted its first bond purchases since announcing the new monetary easing steps last week.
Wall Street dipped in early trading as caution ahead of the beginning of the quarterly earnings season dominated sentiment, but stocks turned up moving into the close.
Earnings forecasts have been scaled back heading into the first-quarter reports, which kick off this week. S&P 500 earnings are expected to have risen just 1.6 percent from a year ago, according to Thomson Reuters data, down from a 4.3 percent forecast in January.
Stocks have rallied strongly this year with major indexes hitting record highs.
"We're waiting for earnings for evidence that the market can be supported at these levels," said Jim Dunigan, chief investment officer at PNC Wealth Management in Philadelphia. "We will see growth in earnings, but clearing the expectations bar could be difficult, which could give us reason to pause."
The Dow Jones industrial average was up 47.31 points, or 0.32 percent, at 14,612.56. The Standard & Poor's 500 Index was up 9.66 points, or 0.62 percent, at 1,562.94. The Nasdaq Composite Index was up 18.41 points, or 0.57 percent, at 3,222.26.
Among the day's most active names, Advanced Micro Devices jumped 13 percent to $2.59 and was the S&P 500's biggest percentage gainer.
In Tokyo, Japan's Nikkei share average jumped as much as 3.1 percent on Monday to its highest level since August 2008, following the promise by BoJ Governor Haruhiko Kuroda on Thursday to inject about $1.4 trillion into the economy in less than two years. Since then the yen has fallen more than 6 percent against both the dollar and the euro, while Japanese stocks have soared
"The BoJ's bazooka has sparked the buying of Japanese stocks, especially domestic sectors like real estate," said Yasuo Sakuma, a portfolio manager at Bayview Asset Management.
The dollar traded at 99.32 yen, up 1.5 percent, while the euro added 1.9 percent to trade at about 129.13 yen.
"Barring any sudden spike in risk aversion, (dollar/yen) is likely to roll through that (100) level as momentum remains relentless for the time being," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
The BoJ has said it would buy 1 trillion yen ($10 billion) of government bonds with maturities between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years.
MSCI's world equity index rose 0.4 percent to 356.91 after registering its worst week of the year on Friday with a five-day loss of 1.26 percent.
Last week, the S&P 500 posted its largest weekly decline this year. Even so, the S&P 500 is up nearly 9 percent for the year so far, while the Dow has gained just under 11 percent.
European shares rose, led higher by the healthcare sector, as investors tiptoed back into the market, after a sharp drop on Friday on the weak U.S. jobs figures. Traders noted a lack of conviction on Monday -- evidenced by low volumes -- with some investors apprehensive before the start of the U.S. earnings season.
The FTSEurofirst 300 closed up 0.2 percent at 1,164.79 points. The euro zone's blue-chip Euro STOXX 50 advanced 0.2 percent to 2,589.25 points.
The prospect that Japanese investors will move out of the domestic debt market due to the heavy central bank buying has boosted the attractiveness of some European debt and demand for U.S. Treasuries.
The U.S. Treasury 10-year note yield fell sharply last week in response to the new BoJ policy, but edged up on Monday to 1.748 percent as some traders booked profits and dealers prepared for this week's auctions of $66 billion in longer-dated Treasury debt.
In Europe the main beneficiary was French debt with 10-year bond yields hitting a record low.
Oil prices were mostly higher, after hitting eight-month lows on Friday on worries over global economic growth.
Brent crude rose to a high of $105.55 before trading around $104.95, up 0.6 percent. U.S. crude rose 86 cents to $93.55 a barrel after logging its biggest weekly loss in more than six months last week.
Reporting by Nick Olivari in New York; Editing by Leslie Adler