Investors bet on a global economic recovery on Tuesday, lifting European and Asian shares for the sixth and seventh consecutive sessions respectively, while the dollar climbed strongly against major currencies.
Oil prices fell back on profit taking after a rally prompted by violence in the Middle East and tension over Russia's gas row with Ukraine.
Expectations that U.S. President-elect Barack Obama will offer $310 billion in tax cuts as part of a $775 billion plan to support the economy have fed into a tentative recovery in global equity markets.
German politicians also debated tax cuts to revive Europe's largest economy.
The pan-European FTSEurofirst 300 .FTEU3 index of top European shares was up 0.8 percent. It has now gained about 16 percent since hitting a low in late November.
"The main things are the Obama plans as well as the German fiscal stimulus package. Markets, rather than focusing on the dire economic and earnings data, are looking forward to the hope that these plans will work," said Bernard McAlinden, market strategist at NCB Stockbrokers.
In Japan, the Nikkei 225 .N225 closed up 0.4 percent and the MSCI index of Asia-Pacific stocks .MIASJ0000PUS outside Japan edged up for a seventh straight day, gaining 0.2 percent.
Oil prices were lower but only after a recent run up.
U.S. crude prices were down 27 cents at $48.54 a barrel after rising 5 percent overnight on fears that Israel's deepening incursion into Gaza and a spat between Russia and Ukraine over gas prices could spark severe supply disruptions.
DOLLAR SURGES
The dollar was up 1 percent against a basket of currencies .DXY, particularly gaining against the euro.
The euro fell to a three-week low against the dollar on speculation that the European Central Bank will cut interest rates further as regional price pressures ease amid broad economic weakness.
"With the situation in Europe deteriorating quite rapidly it leaves the euro quite vulnerable," said Ian Stannard, senior currency strategist at BNP Paribas in London.
The euro fell around 1.3 percent to $1.3432 according to Reuters data. Against the yen, the dollar rose 0.2 percent to 93.57 yen.
On euro zone government bond markets, the interest rate-sensitive 2-year Schatz yield was flat at 1.683 percent, while 10-year Bund yields were flat at 3.025 percent.
