The financial sector has taken further comfort from smaller-than-expected write-downs by Bear Stearns stemming from the sub-prime mortgage market problems.
The firm expects to take a hit of just $US1.2 billion ($1.34 billion), rather than the multi-billion dollar losses earlier feared.
Merrill Lynch shares have received a big boost from reports it is poised to recruit the head of the New York Stock Exchange, John Thain, as its next chief executive officer.
On the economic front, retail sales across America during October have risen 0.2 per cent, which is in line with forecasts.
Inflation fears have been eased by a muted increase in wholesale price measures.
The Producer Price Index is up just 0.1 per cent in October, with the underlying rate unchanged.
On the New York Stock Exchange, the Dow Jones industrial average closed 93 points lower at 13,214.
The high-tech Nasdaq composite index has moved down 29 points to 2,644.
Meanwhile the British share market has staged a sizeable rally.
London's FT-100 index is up 70 points to 6,432 , a gain of 1.1 per cent.
Yesterday in Australia, the market pushed strongly ahead.
The All Ordinaries index jumped 79 points to 6,650.
The major banks all advanced, with Commonwealth Bank shares rising 92 cents to $61.30, while National Australia Bank put on 96 cents to $44.84.
Among the resource stocks, BHP Billiton added 40 cents to $42.20.
Shares in fertiliser firm Incitec Pivot surged 5.3 per cent in value to $91.65 after the company announced a record profit.
The overnight session on the Sydney Futures Exchange saw the Share Price Index 200 contract close down 12 points at 6,600.
The 10-year bond contract is up half a point at 93.86, with the implied yield easing to 6.14 per cent.
On foreign exchange markets, the Australian dollar dropped significantly in morning trade.
About 9:30am AEDT, it was being quoted at 89.37 US cents, down almost nine-tenths of a cent on yesterday's local close.
On the cross-rates, it was at 61.02 euro cents, 99.54 Japanese yen, 43.58 UK pence, and against the New Zealand dollar it was at 1.176.
The gold price recovered overnight to $US812.50 an ounce, while West Texas crude oil rose $US2.84 to $US94.02 a barrel. © 2007 Australian Broadcasting Corporation
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