UPDATED Early gains were largely recovered after a mid-session pullback when Israel's foreign minister warned of a "provocation" by two Iranian warships passing through the Suez Canal into the Mediterranean.
Stocks on Wall Street surged on improvements in the US house building industry, higher corporate earnings and reduced inflation fears.
But early gains were pared mid-session when Israel's foreign minister warned that two Iranian warships passing through the Suez Canal into the Mediterranean Sea were "provocations" that couldn't be ignored.
At the close (10am NZ time), the Dow Jones Industrial Average was up 61.53 points, or 0.5%, to 12,288.17, close to its morning high.
The gains were led by materials and energy stocks, while JP Morgan Chase and Hewlett-Packard were the biggest gainers among the Dow components, rising 2.7% and 2% respectively. Verizon and Microsoft dragged on the downside, falling 1.1% each.
US home construction rose 14.6% in January to the highest level since September last year. Producer prices also showed muted gains, which tempered inflation concerns.
On the corporate front, Genzyme agreed to the terms of a long-awaited takeover by French pharmaceutical group Sanofi-Aventis, while Dell and Deere beat earnings expectations by comfortable margins.
The S&P 500 index was up 0.6% to 1336.32, taking its market capitalisation to around $US12 billion compared with a low of $US6.9 billion in early 2009. The Nasdaq Composite was up 0.6% to 2825.56.
Other markets: Europe up, Asia mixed
European stocks rose for a fourth consecutive session, pushing the Stoxx Europe 600 index up 0.4% to 290.72, its highest closing level since September 2008.
The French CAC 40 index rose 1% to 4151.26, its highest close since September 26, 2008., led by BNP Paribas, up 2.9%, and Credit Agricole, up 4.7%. Sanofi-Aventis climbed 3.5% after it confirmed a long-expected deal to buy Genzyme for $US20.1 billion.
In London, the FTSE 100 index gained 0.8% to 6085.27, as Resolution jumped 6.3%. Germany's DAX 30 index gained 0.2% to 7414.30, buoyed by a 3.5% gain for Deutsche Bank.
In Asia, Japanese stocks rose for a third straight session as a weaker yen spurred exporters, while Chinese shares advanced on metal and automobile companies. Korean stocks declined as shipbuilding, petrochemical and auto stocks there lost ground on continued foreign selling.
The Nikkei Stock Average rose 0.6% to 10,808.29 in Tokyo, stretching its rally. The Nikkei is the best-performing major Asian benchmark so far in 2011, with a gain of 5.7%.
China's Shanghai Composite Index rose 0.9% 2923.90 and Hong Kong's Hang Seng Index added 1.1% to 23,156.97, encouraged by milder-than-expected January inflation in China.
Australia's S&P/ASX 200 ended flat at 4930.20, Korea's Kospi fell 1.1% to 8712.96, Taiwan's Taiex slipped 0.1% to 8712.96 and India's Sensex rose 0.2% to 18,300.90.
Commodities: Oil, gold up
Crude oil and gold futures rose on reports of rising Middle East tension because of Iranian warships passing through the Suez Canal.
Light, sweet crude for March delivery settled 67USc higher at $US84.99 a barrel in New York, after rising as high as $US85.95. Brent crude on the ICE futures exchange settled $US2.17 higher at $US103.81 a barrel, widening the gap in the two contracts to nearly $US19.
Gold for April delivery, the most actively traded contract in New York, rose 0.4%, or $US6.30, to $US1380.40 an ounce.
Dollar up, yen down
The US dollar strengthened early after data for housing starts and producer prices painted a brightening picture of the economy.
The UK pound weakened in the wake of Tuesday's solid advance that was spurred by inflation data that pointed to the strong possibility of central bank rate increases this spring.
The euro was at $US1.3548, compared with $US1.3482 late on Tuesday, after hitting $US1.3570.
The euro strengthened to ¥113.46 from ¥113.01. The dollar moved to ¥83.70 from ¥83.82. The pound weakened to $US1.6061 from $US1.6124.
The dollar weakened to 0.9625 Swiss franc from 0.9673 franc, after touching 0.9607 franc.
