* Global stocks rally as Home Depot, Target surprise
* Crude oil firms above $69 ahead of inventory data
* Euro lifted by ZEW data but retreats from day's high
* Gold firms as dollar declines, oil prices recover (Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Aug 18 (Reuters) - Global stocks rallied on Tuesday, rebounding from the previous day's sharp fall, and oil prices rose above $69 a barrel as encouraging results from two U.S. retailers bolstered sentiment about a recovering economy.
The U.S. dollar and yen fell after a strong report on German investor morale and gains in stock markets worldwide eroded safe-haven demand for the two currencies. For more see [ID:nN18436065].
Equities recovered from sharp declines on Monday, lifting risk appetite and more than offsetting a surprise drop in U.S. housing starts in July.
Rising stock markets led U.S. Treasury debt prices to mostly ease and give back a little of Monday's big gains on the eroding allure of safe-haven government debt.
"We had the strong (German) ZEW survey and that bolstered sentiment, (which) spilled over into the U.S.," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "The market became a little bit more confident that maybe yesterday's sell-off was a bit excessive."
Better-than-expected corporate results from U.S. retailers
Home Depot Inc
U.S. housing starts and permits for new building slipped in July, while the inventory of total houses under construction fell to a record low, a government report showed.
However, some analysts said that fewer new houses may allow the market to absorb inventory and support prices, leading homebuilders higher. [ID:nN17348766] The Dow Jones home construction <.DJUSHB> index rose 2.6 percent.
"We are seeing some tentative signs of improvement in the market this morning, following yesterday's losses around the world," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
The Dow Jones industrial average <.DJI> closed up 82.60 points, or 0.90 percent, at 9,217.94. The Standard & Poor's 500 Index <.SPX> rose 9.94 points, or 1.01 percent, at 989.67. The Nasdaq Composite Index <.IXIC> added 25.08 points, or 1.30 percent, at 1,955.92.
The euro rose from multi-week lows against the dollar and yen, while sterling gained as data showed UK consumer prices held steady in July.
In late trade the euro was up 0.4 percent at $1.4132
Oil tracked gains on Wall Street and currency markets.
U.S. crude for September delivery
London Brent crude for October
"We are just taking our cues from the S&P and the dollar," said Stephen Schork, editor of The Schork Report in Villanova, Pennsylvania.
Oil investors also turned their focus to inventory data.
The release of weekly data from the American Petroleum Institute at 2030 GMT will be followed by U.S. government figures from the Energy Information Agency on Wednesday, with analysts expecting more signs of weak U.S. demand.
European equities ended higher after hitting a two-week low
on Monday, with stronger crude oil prices supporting energy
shares and Swedbank
The FTSEurofirst 300 <.FTEU3> index of top European shares came under some pressure on the U.S. housing data, but moved back up to close 1.4 percent higher at 934.56.
Gold futures rebounded as the dollar fell against the euro, and the inverse relationship between bullion and the U.S. currency could continue to strengthen in the near term.
U.S. December gold futures
Japan's Nikkei share average <.N225> rose 0.2 percent on Tuesday on some late session buying of technology shares, while the MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> gained 0.3 percent. (Reporting by Edward Krudy, Steven C. Johnson and Chris Reese in New York and Atul Prakash, Emelia Sithole-Matarise, Joe Brock, Ian Chua and Jan Harvey in London; Writing by Herbert Lash; Editing by James Dalgleish)