U.S. and European stocks rose on Wednesday as a surprise rise in U.S. durable goods data eased concerns about the weak U.S. economy and helped lift the battered financial sector, but the dollar slipped.
Oil rose on forecasts that Tropical Storm Gustav will intensify into a hurricane and lead to a shutdown of U.S. oil and natural gas platforms as it churns toward the Gulf of Mexico.
Data showing an unexpected fall in U.S. crude stocks also boosted oil demand, which lifted energy shares and made them the biggest contributors to gains in U.S. and European stocks.
The euro strengthened against the dollar and euro zone government bond prices fell after several European Central Bank officials played down the chance of an interest rate cut soon.
Investors bet the dollar's recent jump to 2008 highs against major trading currencies went too far, too fast given the hawkish rhetoric from ECB officials.
Sterling slid to a new two-year low against the dollar in thin trading, pressured by concerns about a slowing British economy that could force the Bank of England to cut rates.
The U.S. durable goods report for July, which showed orders up in many sectors, dealt U.S. government debt a blow but lifted European stocks out of negative territory and provided an initial boost to U.S. stocks.
Orders for durable goods, items meant to last three years or more, were up 1.3 percent after an upwardly revised 1.3 percent gain in June, the Commerce Department said. Analysts were expecting durable goods orders to remain unchanged.
Boeing Co. added 1.65 percent after the government said a 28 percent rise in orders for civilian aircraft helped drive up demand for expensive manufactured items in July.
"The resilience of capital goods spending in face of tight credit conditions, a poor growth outlook and declining business confidence continues to surprise," said Zach Pandl, an economist at Lehman Brothers in New York.
The resurgence in oil prices boosted energy stocks, with Exxon Mobil gaining 0.65 percent to $80.47, while financial stocks also rallied with the S&P Financial Index up 1.69 percent.
The Dow Jones industrial average closed up 89.64 points, or 0.79 percent, at 11,502.51. The Standard & Poor's 500 Index rose 10.15 points, or 0.80 percent, at 1,281.66. The Nasdaq Composite Index was up 20.49 points, or 0.87 percent, at 2,382.46.
European shares rose on an oil-powered rally in British stocks and the robust U.S. durable goods data.
The FTSEurofirst 300 index of top European shares closed 0.2 percent higher at 1,173.64 points, led by energy stocks, which climbed 1.6 percent on the sector index .
Royal Dutch Shell shares climbed 2.3 percent and BP was up 1.8 percent.
"The oil sector in particular, coupled with the steady recovery we have seen in the crude price over the past week, seems to be attracting interest from investors again," said David Jones, chief market strategist at IG Index in London.
Aside from fears over Gustav, oil prices were boosted by data from the U.S. Energy Information Administration that showed crude oil stocks fell 100,000 barrels last week, far less than predictions of a rise of 1 million barrels.
Storm tracks showed Gustav churning toward the Gulf of Mexico, and forecaster Planalytics said 85 percent of U.S. oil and natural gas production in the region could be shut in.
U.S. crude settled up $1.88 to $118.15 a barrel, adding to two days of gains. London Brent crude gained $1.59 to settle at $116.22 a barrel.
Gold ended higher as oil prices rose, boosting the precious metal's appeal as an inflation hedge.
Gold was last quoted at $826.05/827.45 in New York.
"I don't see the market as all bullish though, and should the tropical storm create fewer problems than expected, the sell-off could be immediate," said Philip Carlsson, Saxo Bank's global products manager for futures and options.
The benchmark 10-year U.S. Treasury note rose 2/32 to yield 3.77 percent. The 30-year U.S. Treasury bond rose 1/32 to yield 4.39 percent.
The dollar fell against major currencies, with the U.S. Dollar Index off 0.28 percent at 77.025. Against the yen, the dollar rose 0.02 percent at 109.60. dollar/treas
Asian exporter shares fell as oil prices rose and the outlook for developed economies soured.
Japan's Nikkei share average ended down 0.2 percent, closer to a five-month low touched on Friday.
Outside Japan, stocks in the Asia-Pacific region rose 0.8 percent, Reuters reported.