Non-tech US blue chips surged more than 1 percent after a report showed the pace of growth in US manufacturing picked up in January to its highest level since June as new orders improved, adding to optimism from reports elsewhere in the world.
"The overall economy lacks oomph and is having trouble creating jobs. Manufacturing is one of the few bright spots in an otherwise disappointing story," said Cary Leahey, managing director at Decision Economics.
An unexpected expansion in China's powerful factories in January and the first growth in German manufacturing in four months underpinned a rally that lifted equity markets in Europe about 2 percent and provided US markets an early boost.
Still, manufacturing surveys from around the world remained relatively grim, with crumbling demand in Europe holding back more buoyant economies in Asia.
However, some key numbers were better than feared, and combined with hopes that Greece is edging towards a comprehensive deal on restructuring its debt, helped ease investors' jitters.
China's official purchasing managers' index showed the factory sector expanded slightly in January and the separate indicator from bank HSBC contracted the least in three months.
The Dow Jones Industrial Average was up 144.48 points, or 1.14 percent, at 12,777.39. The Standard & Poor's 500 Index was up 13.72 points, or 1.05 percent, at 1,326.13. The Nasdaq Composite Index was up 21.93 points, or 0.78 percent, at 2,835.77.
MSCI's all-country world stock index rose 1.3 percent, while the FTSEurofirst 300 index of top European shares gained 1.9 percent to hit a six-month high.
The euro rallied on renewed optimism that Greece will reach a deal with its creditors while brewing tension between Iran and the West helped push Brent oil futures above $112 a barrel, putting it on track for its highest close in three weeks.
"People are believing a Greek deal is imminent," said Dean Popplewell, chief currency strategist at OANDA in Toronto. "They are probably over zealous on that and we are still in the same tight trading range."
The euro was up 0.7 percent at $1.3172.
Cautious optimism that the euro zone crisis may be turning a corner fueled demand for European government debt and eased pressure on Portugal, considered the most vulnerable country in Europe after Greece.
Greek Finance Minister Evangelos Venizelos said talks with private creditors on a bond swap deal that is key to the country avoiding an unruly default were "one formal step away."
US Treasuries prices fell as European risk assets improved, dampening demand for the safe haven bonds, and as buying ebbed following a day of large month-end purchases on Tuesday.
The benchmark 10-year US Treasury note was down 13/32 in price to yield 1.84 percent.
Brent crude futures pared gains and U.S. crude turned negative after the release of EIA data.
Brent crude was up $1.26 at $112.24 a barrel, heading for its highest close since Jan. 11. US crude was up 13 cents at $98.61.
