The latest US economic data fuelled hope the Federal Reserve might soon, as early as next week, assist in rekindling the pace of recovery as new claims for state jobless benefits unexpectedly increased for the fifth time in six weeks, while consumer prices dropped in May in the biggest fall since December 2008.
"People are betting on quantitative easing at the next meeting," Sebastien Galy, a senior foreign-exchange strategist at Societe Generale in London, told Bloomberg News. "People are betting on the fact that the bears are too bearish, the world is not going to end and with a little bit of luck in Greece over the weekend, it's not going to take a step off the cliff."
In late afternoon - volatile - trading in New York, the Dow Jones Industrial Average rose 0.81 per cent, the Standard & Poor's 500 Index gained 0.83 per cent and the Nasdaq Composite Index advanced 0.48 per cent.
Claims for unemployment insurance payments unexpectedly increased by 6,000 to 386,000 in the week ended June 9, while the cost of living index fell 0.3 per cent in May, according to Labor Department figures.
"There is very little sign of life," Hugh Johnson, chief investment officer of Hugh Johnson Advisors in Albany, New York, told Reuters. "The economy as measured by employment conditions has slowed and there doesn't appear to be any change when you look at the claims numbers."
Fed policymakers are set to meet for a regular review of the US economy next week. Reuters reports that global central bankers are considering coordinated action to calm markets, citing G20 officials.
In Europe, the Stoxx 600 Index ended the day with a 0.3 per cent drop for the session, as investors are gearing up for this weekend's elections in Greece that might see the country's new government decide to leave the euro zone.
Spain's borrowing costs rose to the highest level since the introduction of the euro, with 10-year bond yields rising to 7 per cent a day after Moody's slashed the nation's credit rating to Baa3, one step above junk, from A3 and put it on review for a further downgrade.
Spain's 10-year yield was up 16 basis points to 6.92 per cent at 5pm London time, after earlier today rising to 6.998 per cent, according to Bloomberg.
Italy, another concern, sold 3 billion euros of three-year notes at an average yield of 5.30 per cent, up from 3.91 per cent at the previous auction on May 14. It sold 4.5 billion euros of debt in total, meeting its maximum target.
Meanwhile, German Chancellor Angela Merkel warned that Europe's largest economy alone cannot save the region.
"Germany is strong, is the economic engine and anchor of stability in Europe," Merkel said in a speech to parliament in Berlin. "Germany's strength is not unlimited. The way out of the crisis in the euro zone can only be successful if all countries are capable of recognising the reality and realistically assessing their strengths."
Late in the New York trading day, Egan-Jones downgraded France's sovereign credit rating to BBB-plus and put it on negative outlook.