Merger activity and stock-ratings upgrades fuelled a rally in stocks on Wall Street and in Europe.

The market's broad gains were led by the materials and health-care sectors.

The advances in the materials sector came despite a sharp decline in gold futures, as Morgan Stanley upgraded Alcoa's shares on rising aluminium prices. Copper futures were also higher.

Alcoa surged 8.7% while Intel gained 3.1% after an upgrade from Barclays.

The healthcare sector's gains came after the US Senate voted to advance health-care legislation in an initial procedural vote.

Insurer Aetna was up 4.6%, pharmaceutical manufacturer Pfizer 2.6% and Express Scripts, a pharmacy benefit manager, 3.8%.

French drug company Sanofi-Aventis agreed to buy consumer drug maker Chattem for $US1.9 billion, a 34% premium to the Tennessee firm's price on Friday.

The Dow Jones Industrial Average closed 85.25 110 points, or 0.8%, higher at 10,414.14 as all 30 of its components climbed.

The S&P 500 index finished 1.0% up at 1114.05. The Nasdaq Composite Index rose 1.2% to 2237.66.

Canadian stocks rose for the first time in three days as prospects of economic growth in Europe boosted shares worldwide and Goldman Sachs put Potash Corporation of Saskatchewan on its “conviction buy list.”

Potash gained 3.5% while Toronto-Dominion Bank advanced 1.6% as financial shares rallied.

Coal and base-metals producer Teck Resources added 2.4% as the economic data signalled rising future demand.

The S&P/TSX Composite Index climbed 91.32 points, or 0.8%, to 11,554.72.

Stocks in Europe climbed, led by energy stocks and some year-end takeover chatter.

The Dow Jones Stoxx 600 rose 1.3% to 249.41, led by oil producers including BP, as oil traded around $US75 a barrel.

BP shares rose 2.5% and Shell 2.6%. Shell said it is looking to sell its onshore Nigerian assets. Sale of its New Zealand downstream assets took a further step yesterday with the signing of a letter of intent for the purchase by Infratil and the NZ Super Fund.

Stocks in Europe extended gains after the strong open in the U.S., which was helped by brokerage firm upgrades of blue chips Intel and Alcoa.

Shares of Spyker Cars rose 19.9% in Amsterdam after the Dutch sports car firm made a new offer for Saab, which is under threat of closure by General Motors.

The UK FTSE 100 rose 1.9% to 5293.99, the German DAX added 1.7% to 5950.53 and the French CAC 40 gained 2.1% to 3872.06.

Commodities: Oil up, gold down

Oil prices fell as the approach of the seasonal holidays sidelined many traders and diminished liquidity.

Colder temperatures in both the US and Europe will boost demand, while geopolitical tensions are expected to limit price moves lower.

The January contract in New York closed 80USc lower at $US72.47 a barrel. The moost-active February contract fell 70USc to $US73.72. The Brent contract on London's ICE futures exchange fell 76USc to $US72.99.

Gold futures gave up their early gains to fall below $US1100 an ounce on expectations that key economic data this week might hasten an eventual interest-rate hike in the US.

Data including home sales, consumer spending and jobless claims are expected to show the economic recovery is gaining steam. The third-quarter gross domestic product, which might be revised down slightly, is still expected to show the economy remains on the mend.

Gold for February delivery fell 1.4%, or $US15.50, to $US1096 an ounce in New York.

Currencies: Dollar up, yen down

The US dollar advanced to a six-week high against the yen as evidence America’s economy is gaining momentum encouraged speculation that the Federal Reserve will start to withdraw its stimulus.

The Swiss franc touched its strongest level since March versus the euro, extending its advance past the 1.50 level.

The dollar increased 0.8% to ¥91.18, from ¥90.49 on December 18. It touched ¥91.23, the highest level since November 4. The advance extended this year’s gain to 0.6%.

The dollar climbed 0.4% to $US1.4276 per euro, from $US1.4338 on December 18, when it appreciated to $US1.4262, the strongest level since Sept.ember4.

The yen depreciated 0.3% to ¥130.17 per euro, from ¥129.75.

Canada’s currency strengthened against all of its major counterparts. It touched the strongest level versus the euro in more than a year and was the biggest winner against the greenback among the 16 most-traded currencies tracked by Bloomberg.

The Canadian currency appreciated 0.4% to $C1.0620 per US dollar, after gaining as much as 1.2%, from $C1.0664 on December 18. Against the euro, the currency touched $C1.5120, the strongest level since November 2008. One Canadian dollar buys 94.16USc.