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LONDON (AP) -- European and U.S. stock markets rallied Tuesday, only briefly losing momentum after a mixed set of U.S. economic data, as tensions related to Dubai's debt problems eased.

Meanwhile, gold broke through $1,200 an ounce for the first time ever as the dollar continued to fall. Commodity prices and the dollar typically trade inversely.

In Europe, the FTSE 100 index of leading British shares was up 97 points, or 1.9 percent, at 5,287.68 while Germany's DAX rose 109.78 points, or 2 percent, to 5,735.73. The CAC-40 in France was 70.79 points, or 1.9 percent, higher at 3,750.94.

In the U.S., the Dow Jones industrial average was up 109.43 points, or 1.1 percent, at 10,454.27 while the broader Standard & Poor's 500 index rose 11.19 points, or 1 percent, to 1,106.82.

European and U.S. stocks briefly came off earlier highs after the Institute for Supply Management reported that the U.S. manufacturing sector grew by less than anticipated in November - its manufacturing index fell to 53.6 in November from October's 55.7, weaker than analysts' expections for a dip to 55. Despite the fall, the sector continues to grow, but at a lower pace, as any reading above 50 indicates expansion.

The market impact was mitigated by data from the National Association of Realtors, which said its seasonally adjusted index of sales agreements rose 3.7 percent from September to October to 114.1, its highest reading since March 2006.

It's a busy week on the economic news front, culminating in Friday's U.S. nonfarm payrolls report for November - the jobs data often set the tone in the markets for a week or two.

If over the week investors conclude that the U.S. economy is losing some steam, then that could well pave the way for an end of year bout of profit-taking following an eight-month bull run.

On Tuesday, however, stocks remained buoyed by mounting optimism that there will be limited contagion from Dubai's debt difficulties.

"Reports that Dubai is negotiating to restructure $26 billion of debt has lessened the risk of default," said Jane Foley, research director at Forex.com.

Last week's announcement from Dubai World, a government investment company with debt worth $60 billion, that it wanted to postpone forthcoming debt payments until May sent shockwaves around financial markets.

Earlier in Asia, Japan's Nikkei led the march higher, closing up 226.65 points, or 2.4 percent, at 9,572.20.

After the markets closed, the Bank of Japan said it had decided to keep its benchmark rate unchanged at 0.1 percent and announced it would provide short term loans to banks totaling 10 trillion yen, or $115 billion.

Nothing emerged to directly counter the rise in the yen, which prompted a big fall in the dollar against the Japanese currency. Though the dollar was up 0.3 percent on the day at 86.57 yen in late-afternoon London trade, it had traded as high as 87.53 yen earlier in the day.

Meanwhile, the euro was 0.7 percent higher at $1.5104 and heading up to 16-month highs.

The weakness in the dollar as well as the Bank of Japan's announcement triggered renewed buying of gold as the precious metal is considered a hedge against a falling dollar and inflation.

Gold was trading 1.2 percent higher at $1,196 an ounce, off its earlier all-time high of $1,200.50.

Elsewhere in Asia, Hong Kong's Hang Seng gained 291.65 points, or 1.3 percent, to 22,113.15 and South Korea's Kospi rose 14.12, or 0.9 percent, to 1,569.72 after the government said exports rose from a year earlier in November for the first time in 13 months.

Elsewhere, Australia's benchmark added 0.4 percent, Singapore's market was up 1.1 percent and China's Shanghai index rose 1.3 percent.

Oil prices rose above $78 a barrel as the dollar weakened. Benchmark crude for January delivery was up $1.19 at $78.47 in electronic trading on the New York Mercantile Exchange.

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AP Business Writer Kelly Olsen in Seoul, South Korea, contributed to this report.

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