Signs that the US economy is improving have strengthened in recent days after a string of healthy data, with Thursday's strong report on weekly jobless claims having a lasting impact.

"Basically what we are seeing here is the realization now the US economy is going to grow at a modest pace in 2012 and the euro is here to stay," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

The Dow Jones Industrial Average gained 42.35 points, or 0.35 percent, to 12,212.00. The Standard & Poor's 500 Index gained 3.38 points, or 0.27 percent, to 1,257.38. The Nasdaq Composite Index gained 1.09 points, or 0.04 percent, to 2,600.54.

MSCI's world equity index gained 0.25 percent but is on track for a fall of 8 percent in 2011.

The pan-European FTSEurofirst 300 index rose 0.7 percent on volume less than a fifth of its 90-day moving average.

A Wall Street Journal report that the Federal Reserve could leave interest rates near zero for longer than it has said also fanned hopes of US growth and higher corporate profits.

The US central bank has previously said it would probably leave rates unchanged until at least the middle of 2013 and officials are considering offering interest rate forecasts that could suggest the Fed will keep rates on hold for longer.

Despite some encouraging signs from the world's biggest economy, the festering euro zone debt crisis has tempered investor enthusiasm for stocks, the euro and commodities.

"There's no doubt that events in the euro area in the first quarter of next year... have the potential to have a profound impact across the globe," said Chris Scicluna, an economist at Daiwa Capital Markets.

The euro was down 0.1 percent against the dollar at $1.3040. The 17-nation common currency erased earlier gains but was holding above a recent 11-month low of $1.2945.

The US Congress, after months of bitter infighting, on Friday approved a two-month extension of a payroll tax cut that President Barack Obama argues is vital to the health of the economy.

The passage of the tax-cut extension will leave most Americans' income intact, supporting their demand for gasoline, and other goods and services.

US crude futures were up 30 cents at $99.84 a barrel, while February Brent contract in London were down 3 cents at $107.86.

Spot gold prices were steady at $1,604.60 an ounce and on track for a 0.4 percent gain on the week.