Manufacturing numbers from the US, China and Germany bettered expectations, renewing optimism for the global economic outlook and encouraging investors to take on risk.
In early afternoon trading in New York, the Dow Jones Industrial Average rose 1.16 per cent, the Standard & Poor's 500 Index gained 1.24 per cent and the Nasdaq Composite Index climbed 1.32 per cent.
In Europe, the Stoxx 600 Index ended the session with a 2 per cent increase. The euro also gained, strengthening 0.8 per cent to US$1.3194 and 0.7 per cent to 100.52 yen.
An index of the US manufacturing sector rose in January to its highest level since June, while China's factory sector unexpectedly expanded. In Europe, Germany posted its first increase in manufacturing output in four months while a UK manufacturing gauge climbed to an eight-month high.
"Manufacturing numbers are what the market is jumping on," John Manley, chief equity strategist at Wells Fargo Funds Management in New York, told Reuters.
Some strategists are updating their bearish forecasts to reflect a better-than-expected start to 2012.
Just two weeks after saying that investors should "remain cautious," Larry Hatheway, the chief economist at UBS, raised his recommendations on global shares and high-yield bonds in a January 23 note to customers entitled, "Wrong, but not too late," Bloomberg News reported. Royal Bank of Scotland Group, and Benoit Anne, the global head of emerging-markets strategy at Societe Generale said their estimates for developing nations were proven wrong.
Financial shares were among the leading gainers including Morgan Stanley which rose nearly 7 per cent amid talk that Facebook will choose the firm to take the lead on its planned initial public offering. More details are expected later today.
The latest round of US earnings included solid numbers for Whirlpool as its upbeat outlook for the full year lifted its stock more than 15 per cent.
It wasn't all good news, however. Shares of Amazon tanked, dropping more than 9 per cent a day after the online retailer warned of a possible first-quarter loss.
And the latest data on the jobs front in the US fell short of expectations, as the private sector added 170,000 jobs in January, according to the ADP National Employment Report. Economists' had called for a gain of 185,000 jobs, according to Reuters.
Investors will eye the US government labour market report due on Friday for further clues. It's expected to show the economy created 150,000 jobs, and a gain in private payrolls of 170,000, according to Reuters data.
"The overall economy lacks oomph and is having trouble creating jobs. Manufacturing is one of the few bright spots in an otherwise disappointing story," Cary Leahey, managing director at Decision Economics, told Reuters.