* Wall Street climbs to four-year high on ECB hope * Euro rallies to seven-week high versus dollar * Spain, Portugal bond yields fall; ECB quells speculation By Wanfeng Zhou NEW YORK, Aug 21 (Reuters) - U.S. stocks rallied to four-year highs o n T uesday and the euro hit a seven-week peak against the U.S. dollar on hopes the European Central Bank will soon start buying Spanish and Italian bonds to contain the debt crisis. Spanish borrowing costs fell and Portuguese government bond yields declined to levels seen before it agreed on a bailout deal in May, 2011, with traders citing media reports that the ECB was drawing up detailed plans about bond-buying. The perception of declining risks from the euro crisis has been a major factor behind recent equities gains, with the S&P 500 up nearly 3 percent so far in August. But volume has been light as investors await central banks' meetings next month. "I am looking for new highs in the major indexes," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. "Overall there is no one major negative that's out there right now that people are scared of." Britain's The Daily Telegraph on Tuesday supported a weekend German report that the ECB planned to put a hard cap on Spanish and Italian bond yields. An ECB spokeswoman, asked about the Telegraph story, referred to the ECB's statement on Monday, when it said it was misleading to report on policy decisions that had not been taken. Nevertheless hopes for the plans remain high. On Wall street, the Dow Jones industrial average was up 43.41 points, or 0.33 percent, at 13,315.05. The Standard & Poor's 500 Index was up 6.51 points, or 0.46 percent, at 1,424.64. The Nasdaq Composite Index was up 15.50 points, or 0.50 percent, at 3,091.71. The MSCI global share index rose 0.8 percent to 328.02 after hitting its highest level since early May. European shares advanced 0.5 percent. "The ECB must act in the bond market because threats, leaks and promises have a limited lifespan. Without ECB intervention, Spanish and Italian rates will rise again as the countries no longer have the confidence of the credit markets," said Joseph Trevisani, chief market strategist at Worldwide Markets, Woodcliff Lake in New Jersey. Yields at a Spanish short-term debt auction dived on T uesday, while Europe's VSTOXX volatility index hit a one-month low, signaling a steady rise in investors' appetite for risk. Spanish 10-year bond yields fell 11 basis points to 6.22 percent, with shorter-dated yields down as much 16 bps. Italian bond yields also dropped. Portuguese 10-year yields were last 21 basis points lower on the day at 9.48 percent, the lowest level since April 20. Portugal's original request for a bailout was on April 6, 2011 and the deal was announced on May 3 of last year. U.S. Treasury debt prices fell. Benchmark yields have generally been rising since hitting a record low of 1.38 percent in late July. Ten-year notes were last trading 12/32 lower in price to yield 1.85 percent, up from 1.81 percent late Monday. Financial markets have been on a red-hot run on hopes that the new urgency in Europe to overcome the 2-1/2-year debt crisis may allow Greece to remain in the euro zone and keep the 17-member bloc from unravelling. Greek Prime Minister Antonis Samaras will meet German Chancellor Angela Merkel, French President Francois Hollande and Eurogroup chief Jean-Claude Juncker in the coming days to try to secure more funding from the European Union, International Monetary Fund and ECB, even though Greece has fallen behind on its debt-cut targets. The euro rallied 1 percent to $1.2470, while the dollar was little changed at 79.39 yen. Brent crude oil rose $1.52 at $115.22 a barrel and has jumped from below $90 at the end of June, propelled by maintenance in the North Sea and increased fear of military conflict between Iran and Israel. U.S. crude added $1.38 to $97.35 per barrel. Gold rallied to a 3-1/2 month high as the U.S. dollar weakened, while platinum hovered just below a two-month peak hit in the previous session as concerns over supply from top producer South Africa festered. Spot gold hit a high of $1,641.20 an ounce and was last at $1,639.01 an ounce.