Global stocks were buoyant Tuesday while the euro struck a near one-month high against the dollar after Federal Reserve chief Ben Bernanke indicated that U.S. monetary policy will remain loose for some time to come to spur the economy.
On Monday, Bernanke said the U.S. job market was still weak despite recent signs of improvement. Investors interpreted his comments as a clear suggestion that the Fed will continue to prop up the economy by keeping short-term interest rates near zero. Some even speculated it could mean the Fed would be willing to buy up more bonds.
The Fed has so far embarked on two rounds of bond-buying, most recently in late 2010, known as quantitative easing. The idea is to drive down long-term interest rates and encourage investors to buy stocks. The second round ignited a 28 percent Wall Street rally over eight months.
The mere thought that a third round of bond-buying, dubbed QE3 by industry insiders, might be possible triggered a turnaround in markets, which last week had been shaken by signs of economic slowdown in China and Europe.
"Once again we are through the looking glass, in a world where stocks rise on hopes that U.S. economic data will weaken, since this then raises the probability that the Fed will launch QE3," said Ben Critchley, a sales trader at IG Index.
"We remain stuck in a world where markets seem unable to cope without the possibility of monetary stimulus, underscoring the fact that the global economy still has some way to go before it is successfully weaned off active central bank intervention," he said.
In Europe, the FTSE 100 index of leading British shares was up 0.3 percent to 5,392 while Germany's DAX rose 0.7 percent to 7,130. The CAC-40 in France was 0.6 percent higher at 3,524.
Wall Street was also poised for a solid opening after Monday's stellar gains, which saw the Standard & Poor's 500 index close at 1,416.51, its best finish since May 2008 _ both Dow futures and the S&P futures indicated a 0.2 percent advance at the open.
In the currency markets, the euro continued to find support as investors became more comfortable with riskier trades. Conversely, Bernanke's hint that rates will remain low hurt the dollar _ lower rates tend to weigh on a currency by reducing the returns investors get from holding it.
The euro was up 0.2 percent at $1.3374, its highest level for nearly a month.
Bernanke's comments also helped support prices for commodities since they are traded in dollars _ when the U.S. currency drops, commodities become more attractive to investors holding other currencies, such as the euro.
The benchmark New York oil price was up 18 cents at $107.21 a barrel, near nine-month highs.
Pamela Sampson in Bangkok contributed to this report.