MSCI's all-country world stock index climbed nearly 0.9 percent, led by Europe, where the FTSEurofirst 300 index gained 1.3 percent.

"It is quite interesting that Spain has now followed through to cut its budget deficit. I guess the view is if Greece can do it then so can we. That sort of contagion is positive for the markets." said Mike Lenhoff, chief strategist at Brewin Dolphin.

Concerns that a debt crisis in Greece could spill over to other euro-zone nations with high borrowings eased on Wednesday as Spanish Prime Minister Jose Luis Rodriguez Zapatero said Madrid would slash civil service pay by 5 percent this year, freeze it in 2011 and cut 13,000 public sector jobs.

Gold hit a record high on a flight-to-safety bid, touching a new high of $1,244.45, which marked a nearly 20 percent gain since February. Spot gold rose $9.30, or 0.75 percent, to $1,241.30.

The Dow Jones Industrial Average gained 108.75 points, or 1.01 percent, to 10,857.01. The Standard & Poor's 500 Index rose 10.79 points, or 0.93 percent, to 1,166.58 and the Nasdaq Composite Index climbed 34.52 points, or 1.45 percent, to 2,409.83.

The rise in the price of gold drove up materials shares.

The PHLX gold and silver index rose 1.5 percent.

Freeport-McMoRan Copper and Gold Inc rising 2.8 percent to $72.17.

The pan-European FTSEurofirst 300 index of top shares closed up 1.3 percent at 1,048.56 points. The index is now up 0.3 percent for the year having dipped into negative territory in early May on euro-zone sovereign debt concerns.

Financials were among the top gainers.

The euro declined 0.09 percent at $1.2642. The battered currency rose earlier after Spain announced its austerity measures and data showed the euro zone economy grew modestly in the first quarter.

Germany's GDP grew for the fourth quarter in a row in the first three months of 2010, data showed on Wednesday.

Gains in the euro were short-lived as investors remain worried about whether weaker euro zone economies can deliver debt cuts and the draining impact of austerity measures on Europe's growth.

The dollar rose against a basket of major trading-partner currencies, with the US Dollar Index up 0.29 percent at 84.712. Against the Japanese yen, the dollar was up 0.28 percent at 92.94 yen.

US Treasuries prices fell as the euro zone's attempts to stanch its budget crisis helped stabilize stock markets and traders braced for a 10-year bond auction.

Investors must absorb $78 billion of US Treasury bonds in auctions this week, including $24 billion of 10-year notes on Wednesday. Ten-year Treasury note yields rose 0.04 percentage point to 3.57 percent.

Across Europe, the FTSE 100 index was up 0.9 percent as Conservative leader David Cameron took up the position of Prime Minister, at the head of a coalition government.

Germany's DAX was 2.4 percent higher and France's CAC 40 rose 1.1 percent