Prices were already up more than $2 before the government released its initial forecast for this year's Atlantic hurricane season.

The day's gains added to encouraging demand data for US fuels last week that the government reported on Wednesday, even though domestic crude stocks continued to rise.

"The NOAA forecast calling for an intense Atlantic hurricane season this year is having an impact on oil futures, with storm premium being factored into prices," said Phil

Streible, senior market strategist at Lind-Waldock in Chicago.

"This adds to the earlier boost that came from higher equities. We've also seen a weakening of the dollar ... that has encouraged speculators to buy in," Streible said.

US crude futures for July delivery rose $2.58, or 3.6 percent, to $74.09 a barrel, by 1:04 p.m. EDT (1704 GMT).

ICE Brent July crude futures gained $2.65, or 3.7 percent, at $74.39.

At one point, US crude gained as much as 24 cents against

Brent, hoisting a premium for the first time since April 12. It

fell to a discount as deep as $6.57 in mid-May due to a build-up in crude stored in Cushing, Oklahoma, the delivery hub

for oil futures traded on the New York Mercantile Exchange.

Meanwhile, investors drove a broad rally in the euro and pushed US stock indexes up more than 2 percent on Thursday, after China's assertion that Europe will remain a major investment market,

The People's Bank of China said a Financial Times report that Beijing was concerned about its euro-zone bond holdings was groundless. The report had driven the euro to a near four-year low on Wednesday and cut short a rally in US stocks.

Markets charged higher as the perceived risk that China might change the composition of its foreign exchange was reduced.

Commodity prices rose as the dollar fell, boosted by improving US oil demand and a drop in crude stockpiles. Gold rose slightly.

European shares closed above the 1,000 mark for the first time in just over a week and U.S. shares rose more than 2 percent.

In midday New York trade, the Dow Jones Industrial Average rose 204.05 points, or 2.05 percent, at 10,178.50. The Standard & Poor's 500 Index gained 24.66 points, or 2.31 percent, at 1,092.61. The Nasdaq Composite Index climbed 61.80 points, or 2.81 percent, at 2,257.68.

Equity markets shrugged off a report showing the US economy grew at a slower pace than previously estimated in the first quarter as business investment slackened.

The pan-European FTSEurofirst 300 index closed up 2.9 percent at 1,000.46 points. The index remains down around 10 percent from a mid-April peak on worries about Europe's debt crisis.

MSCI's all-country world stock index rose 2.65 percent.

The euro rose 1.67 percent at $1.237 while the dollar fell against a basket of major trading-partner currencies, with the US dollar index down 1.05 percent at 86.208.

China has been trying to diversify its currency reserves to reduce the dollar's dominance in favor of the euro and yen to curb risks.

On Wednesday the euro collapsed 1.5 percent after the Financial Times reported China's State Administration of Foreign Exchange (SAFE) was meeting foreign bankers because of concerns about its exposure to debt troubles in Europe.

SAFE, the arm of the central bank, manages China's $2.4 trillion in foreign exchange reserves — the world's largest stockpile.

Separately, the Kuwaiti Investment Authority on Thursday denied a local media report that it, too, was reducing its exposure to euro zone investments. The sovereign wealth fund stated there was no change to its long-term investment strategy including Europe.

In response to the better risk appetite, safe-haven benchmark 10-year US Treasuries traded 1-1/32 lower, driving the yield up to 3.31 percent.

Euro zone government bond futures settled 39 ticks lower at 128.33, well off the session low of 128.34.