Supportive economic data and news of a big merger in the retail sector put a spring back in Wall Street's step on Wednesday, while Europe shrugged off a fresh all-time high in the euro and headed back to its best level for 28 months.
The dollar remained under heavy pressure against the euro as traders overlooked a moderate rise in consumer prices in October and attention turned instead to the key meeting of G20 finance ministers that begins in Berlin tomorrow.
However, many analysts believe the Berlin meeting may do little to halt the dollar's slide, since the ministers are more concerned to put fresh pressure on China to let its currency rise against the greenback.
The dollar plunged to a fresh all-time low against the euro at $1.3047 as it breached several key technical barriers. The Canadian dollar hit a 12-year high against the dollar while sterling fell to an 11-month low against the euro as UK data raised concerns about a slowing economy.
Earlier, Wall Street had headed back towards multi-month highs, lifted by the merger between Kmart and Sears, better-than-expected earnings from the computer group Hewlett-Packard and the consumer price data for October.
By midsession, the Dow Jones Industrial Average was 1 per cent higher at 10,593.32. However, by the closing, following a late rebound in oil prices, the Dow Jones Industrial Average finished 0.6 per cent higher at 10,549.57, while the broader S&P 500 index was 0.6 per cent higher at 1,181.93. The Nasdaq Composite index gained 1 per cent to 2,099.68.
"We believe it would be absurd to worry about inflation at this point in the economic cycle," said Anais Faraj at Nomura International. "With core inflation stabilising and the Fed continuing its gradual tightening, we are probably not far off the peak of the price cycle."
European markets refused to be thrown off balance by renewed strength in the euro, and it was left to the telecoms sector to provide leadership after forecast-beating interim profits from Britain's MMO.
By the close, the FTSE Eurofirst 300 index rose 1 per cent to 1,036.90.
Overnight news of Hewlett-Packard's upbeat earnings report, and a number of strong market debuts by companies that had sold shares worth more than $2.5bn, kept Asian markets, excluding Japan, close to five-year highs.
But Tokyo was lower for a second straight day amid worries about the sustainability of Wall Street's three-and-a-half week rally.
The dollar's slide towards a seven-month low against the yen hit exporters, leaving the Nikkei 225 Average down 0.3 per cent at the close.
In commodity markets, Nymex crude oil was lower at midsession in New York but trade was volatile as traders assessed another rise in weekly crude inventories but an overall decline in distillate supplies.
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