Equities advanced amid expectations that policymakers are gearing up to bail out Spain in an effort to help curtail the impact of Europe's debt crisis on the pace of global growth.

In late afternoon trading in New York, the Dow Jones Industrial Average climbed 1.83 per cent, the Standard & Poor's 500 Index rose 1.65 per cent and the Nasdaq Composite Index gained 1.84 per cent.

Underpinning the positive sentiment was the Federal Reserve's assessment of the world's largest economy, pointing to a moderate pace of growth.

"Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from early April to late May," the Fed said in its latest Beige Book survey of business conditions. "Economic outlooks remain positive, but contacts were slightly more guarded in their optimism."


That's an improvement from the April survey in which the Fed said the US economy had grown at a "modest to moderate" pace.

In Europe, the Stoxx 600 Index advanced 2.3 per cent, it largest one-day jump in six months.

While the European Central Bank left its key interest rate unchanged at 1 per cent, ECB President Mario Draghi said policy makers had discussed a reduction in borrowing costs, bolstering speculation that might happen soon to help bolster sagging growth and confidence in the euro zone as Spain appears to be pushed into the footsteps of Ireland, Portugal and Greece.

"Draghi left the door wide open for a rate cut," Tobias Blattner, an economist at Daiwa Capital Markets Europe in London, told Bloomberg News. "But policy makers wanted to keep their powder dry until after the Greek elections and the independent assessment of the Spanish banking sector."

The IMF report on Spain is due early next week. The Greek elections are set for June 17.

Indeed, Draghi highlighted the central bank is on alert amid "increased downside risks to the economic outlook".

"We monitor all developments closely and we stand ready to act," he said.

European sources told Reuters that Germany and European Union officials sought solutions for Spain's weakened banks, although Madrid has not yet requested assistance and is resisting political conditions.

Spain will seek to sell 2 billion euros of bonds on Thursday, providing a fresh check on the country's access to financial markets.

In the US, shareholders of Tempur-Pedic International are unlikely to get a good night's sleep after shares of the mattress maker sank 41 per cent on its revised full-year forecast. Shares of its rivals fell too, with Select Comfort dropping 18 per cent and Mattress Firm sagging 20 per cent, according to Reuters.

In the continuing saga known as the Facebook IPO, Nasdaq has agreed to pay US$40 million in cash and trading rebates to compensate clients for the problematic debut of the social network company's shares. The offer falls far short of what brokers have claimed.