Wall Street advanced as earnings by Honeywell and Intel surpassed expectations, sparking relief that corporate profits are proving more resilient than initially feared.
Shares of Honeywell rose more than 6 per cent, while those of Intel climbed more than 3 per cent, after both companies posted second-quarter profits that beat forecasts.
Earnings have exceeded analyst estimates at 73 per cent of the 63 companies in the Standard & Poor's 500 Index that have reported results so far, according to data compiled by Bloomberg. Profits have dropped 4.6 per cent for the group and the entire index is projected to report a 2.1 per cent decline in earnings.
"The theme coming out in earnings is companies are coming in short in revenue but still beat on earnings. Analysts have moved their targets [lower] and companies still are lean and mean and are able to generate profit," Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh, told Reuters.
While Intel reduced its annual sales forecast, investors chose to focus on the fact that its quarterly profit topped estimates.
"Intel lowered guidance but it was not unexpected and not disastrous," Michael James, a managing director of equity trading at Wedbush Securities in Los Angeles, told Bloomberg. "Pessimism was pretty high and we're now seeing people both covering and getting long some names. Intel's leading the technology group higher."
In late afternoon trading in New York, the Dow Jones Industrial Average and the Standard & Poor's 500 Index both advanced 0.70 per cent, while the Nasdaq Composite Index climbed 1.17 per cent.
Underpinning a sense of optimism were the latest data on the construction of new US homes which climbed to the highest level in almost four years. Housing starts rose 6.9 per cent last month to a seasonally adjusted annual rate of 760,000 units, according to the Commerce Department.
"Housing is clearly in recovery mode, although the sector is much less important than it used to be," Jim O'Sullivan, an economist at High Frequency Economics in Valhalla, New York, told Reuters.
In its Beige Book business survey, released today, the US Federal Reserve said the economy grew at a "modest to moderate" pace in June and early July.
"Manufacturing activity continued to expand slowly in most districts," the Fed said in its Beige Book. "Employment levels improved at a tepid pace."
In Europe, the Stoxx 600 Index ended with a 1.1 per cent gain for the session. Here too better-than-expected corporate results including from Credit Suisse lifted sentiment.
However, investors are still keen on the perceived safety of German bunds. An auction of securities due in 2014 drew a negative yield for the first time as the nation allotted 4.17 billion euros of the debt at an average rate of minus 0.06 per cent at today's sale, according to Bloomberg.