US stocks rose more than 1 percent on renewed hopes for a global economic recovery after the Australian central bank raised interest rates and in anticipation of the start of an improved US earnings season.

The Dow Jones industrial average added 131.50 points, or 1.37 percent, to 9,731.25. The Standard & Poor's 500 Index gained 14.26 points, or 1.37 percent, to 1,054.72. The Nasdaq Composite Index rose 35.42 points, or 1.71 percent, to 2,103.57.

European shares gained sharply with the heavyweight banking sector boosted by an upgrade from BofA Merrill Lynch.

The FTSEurofirst 300 closed up 2.2 percent at 992.76 points. The European benchmark index is up more than 54 percent from its lifetime low on March 9, as investors have become more confident of the prospects of economic recovery.

Japan's Nikkei average inched up 0.2 percent in see-saw trade on Tuesday as bank shares such as Mitsubishi UFJ Financial Group climbed after Goldman Sachs upgraded the US banking sector.

The benchmark Nikkei rose 17.31 points to 9,691.80. At one stage, it fell as far as 9,628.67, its lowest since July 22.