Wall Street rallied overnight even as a gain in oil prices fizzled, as investors found value in some beaten-down stocks.

In 1.09pm New York trading, the Dow Jones Industrial Average climbed 1.3 percent, while the Nasdaq Composite Index surged 2 percent. In 12.54pm trading, the Standard & Poor's 500 Index advanced 1.4 percent.

On Monday US financial markets were closed for the Presidents' Day holiday. To be sure, some say the gains might be short-lived.

"We are seeing some bargain hunting but it isn't enough as yet to reverse the negative sentiment," Art Hogan, chief market strategist at Wunderlich Securities in New York, told Reuters.


Rallies in shares of Caterpillar and those of Boeing, last up 3.4 percent and 3.3 percent respectively, led the gains in the Dow.

Oil prices pared earlier gains after Saudi Arabia and Russia agreed to cap oil output at current levels, near record highs. However, the two asked that other major exporters join them in efforts to reduce the global glut that has hammered prices.

"A production freeze dependent upon the involvement of Iran seems a bridge too far at this juncture," Matt Smith, director of commodity research at New York-based ClipperData, an energy data provider, told Reuters.

Brent last traded at US$32.39 a barrel in early afternoon, after earlier climbing as high as US$35.55, while US crude was at US$28.14, after earlier touching US$31.53.

US Federal Reserve Bank of Minneapolis President Neel Kashkari said regulators must consider options including breaking up the nation's largest financial institutions.

"The biggest banks are still too big to fail and continue to pose a significant risk to our economy," Kashkari said in Washington. It was his first public speech in his role as the Minneapolis Fed chief, which he assumed at the start of the year.

Meanwhile, analysts expect the central bank will lift interest rates twice this year. A Reuters poll of about 80 analysts predicted the Fed will raise rates in the second quarter, followed by another increase towards the end of the year, which would leave rates between 0.75 and 1.00 percent.

In Europe, the Stoxx 600 Index ended the day with a 0.4 percent decline from the previous close, as Standard Chartered shares paced a drop in the region's bank stocks. France's CAC 40 Index slipped 0.1 percent, while Germany's DAX Index fell 0.8 percent. The UK's FTSE 100 Index rose 0.7 percent.

Weighing on sentiment was a ZEW Centre for European Economic Research report showing Germany's investor confidence in February declined to its lowest level since October 2014.