Stocks climbed as the latest data on US retail sales and jobs bolstered hope that the world's largest economy might be on track for a sustainable recovery.
Retail sales rose a better-than-expected 0.6 per cent last month after a 0.1 per cent gain in April, data from the Commerce Department showed. Polls by Bloomberg News and Reuters had called for a 0.4 per cent increase.
The latest better-than-expected jobs data also helped. Initial claims for state unemployment benefits fell 12,000 to a seasonally adjusted 334,000 last week, according to the Labor Department.
The US economy remains a bright spot. The World Bank downgraded its global growth forecast for this year, down to 2.2 per cent expansion from 2.4 per cent previously. It reduced its expectations for growth in China, the world's second-largest economy, to 7.7 per cent from 8.4 per cent, while it predicts the euro-zone economy will shrink 0.6 per cent.
"The economy around the globe is slowing down so US investors are certainly watching the data and hopefully see signs that the US is not joining their friends in Europe and emerging markets," Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas Asset Management in Norfolk, Virginia, told Bloomberg News.
"As markets get higher and higher, they can't decide, 'is the game over?' Everybody wants to take their profits in this market, but they don't want to miss the last 100 points," Wilbanks said.
In late afternoon trading in New York, the Dow Jones Industrial Average gained 0.80 per cent, the Standard & Poor's 500 Index rose 0.97 per cent and the Nasdaq Composite advanced 0.99 per cent.
The World Bank's economic downgrades helped make US Treasuries more appealing, however, pushing yields on the 10-year bond 5 basis points lower to 2.17 per cent.
Even so, the bond market has lost support recently as investors worry about the US Federal Reserve's timing on tapering its US$85 billion-a-month bond-buying program.
Investors pulled US$10.93 billion from bond funds in the week ended June 5, Reuters reported, citing the Investment Company Institute. It was the biggest weekly outflow since October 15, 2008, and followed 21 straight months of inflows, according to ICI.
Next week's meeting of the Federal Open Market Committee and the subsequent press conference by Fed chief Ben Bernanke will be very closely monitored for any further clarity on the likelihood and timing of the potential reduction in monetary stimulus Bernanke mentioned in comments to Congresss.
"They are playing with fire when they want to talk about tapering but don't explain how it fits in with the rest of the exit strategy clearly," Michael Gapen, a former section chief at the Fed Board's Division of Monetary Affairs, now a senior US economist at Barclays, told Bloomberg News. "You risk the premature tightening that you want to avoid."
In Europe, the benchmark Stoxx 600 Index ended the session with a 0.1 per cent decline from the previous close. Both France's CAC 40 and the UK's FTSE 100 also fell 0.1 per cent, while Germany's DAX dropped 0.6 per cent.