The market tends to grab hold of whatever was the latest announced economic indicator

Brian Bush Stephens Inc

In New York the market was driven higher by news that the country's unemployment rate had fallen to 5.7% in August.

Investors were also cheered by a sales update from the world's biggest chip maker Intel, which was not as gloomy as had been feared.

Intel shares rose 7% and helped push other tech stocks higher.

Military action

But analysts warned that it would need a string of positive news for New York to hold on to its gains.

"We've had so much conflicting data on the health of the economy in past several weeks, the market tends to grab hold of whatever was the latest announced economic indicator," said Brian Bush, director of equity research at Stephens Inc.

In Europe the big oil companies Shell and BP led the way. They were driven higher by a rise in the price of crude oil amid growing concerns about the possibility of US military action against Iraq.

The Dow Jones index rose 143.5 points to 8,427.2 and the Nasdaq added 44.3 points to 1,295.3.

London's FTSE 100 index closed up 96 points at 4,107. Paris's Cac 40 was 106 points higher at 3,245 and Frankfurt's Dax was 110 points up at 3,465.

Air France loses altitude

Shares in supermarket group Safeway were more than 7% higher at 221 pence, after reports that rival Asda was planning a �2.8bn takeover bid.

Analysts said regulators were likely to take a dim view of any takeover attempt, on competition grounds, but investors starved of merger and acquisition news were happy to latch onto any bid talk.

In France, Vivendi Universal jumped nearly 15% as investors were encouraged by reports that the debt-laden media giant was considering a much wider sale of publishing assets than previously thought.

Air France dipped 1% as pilots began the first of four consecutive days of strikes.

About a third of the carrier's short and long-haul flights have been cancelled between 6 and 9 September, while investors fear the dispute with pilots will result in a higher wage bill and greater operating costs for the airline.

Deutsche Telekom was among the gainers in Frankfurt, rising 4% on reports it might merge its US unit Voicestream with rival Cingular - a move that would allow the German company to make some cost savings.