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Equities and bonds advanced as a larger-than-expected drop in the US trade deficit bolstered optimism about the accelerating pace of growth in the world's largest economy, while a Federal Reserve official recommended maintaining a high level of stimulus.
The US trade deficit narrowed more than expected in November, shrinking 12.9 percent to US$34.3 billion, Commerce Department data showed.
"The report should dispel worries that fourth quarter growth will be really weak," Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania, told Reuters. "It may not be robust, but should set us up for even better growth this year."
Accelerating earnings growth will help boost equities this year, according to JPMorgan Chase chief US equity strategist Thomas Lee, Bloomberg News reported. After climbing 6 percent this quarter, S&P 500 profit will rise 10 percent in the second quarter, 11 percent in the third and 14 percent in the fourth, according to Lee's estimates.
In afternoon trading in New York today, the Dow Jones Industrial Average gained 0.64 percent, while the Standard & Poor's 500 Index rose 0.52 percent and the Nasdaq Composite Index climbed 0.77 percent.
Gains in shares of UnitedHealth Group, last up 4 percent, and those of Johnson & Johnson, last 1.9 percent stronger, led the Dow higher. Those stocks received ratings upgrades from analysts at Deutsche Bank and RBC Capital Markets respectively.
US Treasuries took heart from comments by Boston Fed President Eric Rosengren who said the central bank should ease back the pace of its bond-buying programme "very gradually."
"[L]ong-term labour markets scars, which result from a very slow recovery, lead me to believe that the Federal Reserve should remain highly accommodative and wind down our extraordinary programs only very gradually, in order to minimise the costs and risks of not returning to full employment more quickly," Rosengren said in a speech today in Hartford.
As widely expected, the US Senate yesterday confirmed Janet Yellen's appointment as the next Chairman of the Fed. She will succeed Ben Bernanke when his second four-year term expires on Jan. 31.
In Europe, upbeat jobs data from Germany, the region's largest economy, bolstered the mood. Unemployment in Germany fell more than expected in November, declining the most in almost two years.
The Stoxx 600 Index closed with a gain of 0.7 percent. The UK's FTSE 100 advanced 0.4 percent, while both Germany's DAX and France's CAC 40 added 0.8 percent.
The increased optimism about the euro-zone's economic recovery is also helping bonds, especially those of countries on the receiving end of financial bailouts.
Ireland raised 3.75 billion euros selling a 10-year bond after receiving orders of more than 14 billion euros, Bloomberg News reported, citing people familiar with the matter.