Global stocks jumped almost one percent on Monday while the dollar struggled after Federal Reserve Chairman Ben Bernanke left the door open for further action to stimulate the U.S. economy and fight unemployment.
World shares rose 0.98 percent, with European and Asian markets tracking Friday's 1 percent rise on Wall Street following Bernanke's keynote speech in Jackson Hole.
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As the same venue, IMF chief Christine Lagarde added to pressure for policymakers to do more to prop up a flagging global economy, telling officials they must "act now", including forcing European banks to bulk up their capital.
U.S. stock futures predicted a 1 percent rise when the market opens after Hurricane Irene, downgraded to a tropical storm on Sunday, caused less damage than feared in the nation's financial centre.
With London markets closed for a holiday, European stocks rose 0.8 percent, with banks shrugging off Lagarde's comments on the sector to trade up 1.1 percent.
Bernanke gave no details on Friday of further action to boost the U.S. recovery but said the central bank's policy panel would meet for two days next month instead of one to discuss additional monetary stimulus, offering some hope to investors of a move then. .
Analysts said a bad run of data before the Fed's meeting may prove crucial.
"The change to a two-day meeting to 'allow a fuller discussion' is something that will likely keep market expectations elevated about the possibility of further monetary policy stimulus," Barclays Capital economist Michael Gapen said in a note to clients.
Both the dollar and euro gained around 1 percent against the Swiss franc, in which investors are now facing negative rates of return following Swiss National Bank moves to flood the market with liquidity.
But the possibility of more monetary stimulus in the U.S. kept the dollar under pressure on a broader front, down 0.2 percent against a trade-weighted basket of currencies.
Against the yen, the greenback traded at 76.61 yen , recoiling from a recent high around 77.69. German government debt also fell in response to the rise for riskier assets.
Debt troubles and political tensions on both sides of the Atlantic make monetary policy the only viable short- to medium-term policy response to slowing growth, said Viktor Shvets, regional strategist at Samsung Securities in Hong Kong.
But following through with another round of bond buying would be harder for the Fed this time around, some analysts say, citing rising core inflation in the U.S. and a split regarding policy within the Fed as obstacles.
"He (Bernanke) has a much, much harder decision this time," said Jim Walker, founder of Asianomics told Reuters television.
"What he's got to do is convince the dissenting voices in the Fed -- and there are now three of them -- that economic growth is so bad that it is time to use even more extraordinary measures."
Japan's Nikkei closed up 0.6 percent, while South Korea's KOSPI , the Asian market seen as most geared to a global recovery, jumped more than 2.8 percent.
"Bernanke said the economic recovery would accelerate and that the central bank would prop up growth if needed. So it's a win-win," said one senior trader at a European investment bank.
"The cyclicals are having a catch-up. If there's going to be a recession, cyclical stocks are the ones that get hit, so (after the Bernanke speech) we're seeing risk going back into names that are exposed to the sharp end of the economy."
Brent crude traded just below $111, dipping as oil refiners and terminals along the U.S. east coast weathered Irene, easing fears of fuel supply disruptions.
NYMEX crude for October delivery was up 0.1 percent. Cash gold fell as much as 1.2 percent to $1,806.29 an ounce and stood at $1,815.25 by 0926 GMT.
In China, the Shanghai Composite fell 1.2 percent, bucking the trend across Asia, as the latest move by the central bank to mop up excess liquidity and fight inflation hurt banking and property stocks.