In the U.S. equity market, tech shares, up 1.58 percent led the advance after a modest pullback on Tuesday. IBM Corp (>> International Business Machines Corporation), which gained 2.9 percent to $168.65, helped pace gains after Barclays upgraded the stock two notches to "overweight" ahead of its quarterly results on Thursday.

Notable laggards were Goldman Sachs Group Inc (>> Goldman Sachs Group), down 1.86 percent and Bank of America Corp (>> Bank of America), off 0.19 percent, after their quarterly results included charges related to the new federal tax law.

U.S. corporate earnings are expected to be solid, with growth for the quarter forecast at 12.2 percent, according to Thomson Reuters data through Wednesday morning. Of the 36 companies that have reported earnings, 77.8 percent have topped expectations.

"There is a virtuous cycle here. If these companies are doing better and we have this cohort of millennials getting ready to become adults, have kids and buy houses, we have some growth here," said Kim Forrest, senior equity research analyst, Fort Pitt Capital Group in Pittsburgh.

"Industrial production was very strong and the Beige Book reinforced everything we have been hearing."

The Dow Jones Industrial Average <.DJI> rose 322.79 points, or 1.25 percent, to 26,115.65, the S&P 500 <.SPX> gained 26.14 points, or 0.94 percent, to 2,802.56 and the Nasdaq Composite <.IXIC> added 74.59 points, or 1.03 percent, to 7,298.28. The dollar was higher against a basket of major currencies in a choppy session, buoyed by the stronger-than-forecast data on domestic industrial output in December that supported the notion of a steady U.S. economic expansion.

The dollar briefly moved lower after a tweet by a Politico reporter that U.S. Republican Senator Lindsey Graham said he would not vote for a Republican "continuing resolution" stopgap bill to fund the government temporarily.

But the Federal Reserve's Beige Book report on the economy, which said the U.S. economy and inflation expanded at a modest-to-moderate pace from late November through the end of 2017, while wages continued to push higher, helped the dollar regain its footing.

Equities in Europe closed lower, as declines in luxury fashion brand Burberry Group Plc (>> Burberry Group) and educational publishing company Pearson Plc (>> Pearson) weighed, following sales and earnings updates.

The pan-European FTSEurofirst 300 index <.FTEU3> lost 0.07 percent and MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.46 percent.

The dollar index <.DXY> rose 0.37 percent, with the euro down 0.42 percent to $1.2208.

Oil prices were higher ahead of the release of U.S. petroleum data that was expected to show a ninth straight weekly drawdown in crude inventories.

U.S. crude settled up 0.38 percent at $63.97 per barrel and Brent closed at $69.38, up 0.33 percent.

World shares have rallied at the start of 2018 on optimism for continued strong global growth and improving corporate earnings, with many analysts expecting the bull run in equities to lengthen.

Benchmark 10-year notes last fell 8/32 in price to yield 2.572 percent, from 2.544 percent late on Tuesday.

(Editing by Nick Zieminski and Lisa Shumaker)

By Chuck Mikolajczak