Equities received a lift from unexpected growth in US manufacturing, underpinning hopes that the slowdown in the world's largest economy might be a little less than feared.
A report today showed that the Institute for Supply Management's US factory index increased to 51.5 in September from 49.6 a month earlier. The expansion was a surprise to most economists.
"Numerically that is a pretty small amount," Peter Jankovskis, co-chief investment officer at Oakbrook Investments in Lisle, Illinois, told Reuters. "But in terms of looking at the number, it's the difference between seeing contraction and seeing growth. So psychologically that's pretty important."
The ISM's new orders measure rose to a four-month high of 52.3 from 47.1, Bloomberg reported. The employment index advanced to 54.7 from an almost three-year low of 51.6 the prior month. The gain from August was the biggest since October 2009. The group's measures of production, export demand, prices paid and order backlogs also climbed in September.
In afternoon trading in New York, the Dow Jones Industrial Average gained 0.92 per cent, the Standard & Poor's 500 advanced 0.86 per cent, while the Nasdaq Composite Index edged 0.09 per cent higher.
Meanwhile, US Federal Reserve Chairman Ben Bernanke stressed a promise that the central bank will keep borrowing costs low even amid signs of improvement.
"We expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens," Bernanke told the Economic Club of Indiana in Indianapolis today. The Fed's promise to keep the short-term interest rate "at exceptionally low levels to at least mid-2015 ... doesn't mean that we expect the economy to be weak through 2015."
In Europe, the Stoxx 600 Index finished the session with a 1.4 per cent climb from the previous close. National benchmark stock indexes also rose in Germany, France and the UK, gaining 1.5 per cent, 2.4 per cent and 1.4 per cent respectively.
The euro, last up 0.4 per cent against the greenback, also benefited from the optimism about the euro zone's measures to deal with its ongoing sovereign debt crisis.
Specifically, investors drew heart from a better-than-expected health of the Spanish banking system after 14 lenders were found to require a 59.3-billion-euro injection of capital and the country announced its fifth austerity budget.
Over the weekend Spain said it plans to borrow 207.2 billion euros next year, widening the country's debt to 90.5 per cent of gross domestic product, according to Bloomberg.
To be sure, economic data aren't bright. Reports showed that manufacturing in the euro zone shrank for a 14th month in September and the unemployment rate climbed to the highest on record.