"For market bulls this is even better than Goldilocks could have imagined," J.P. Morgan analysts said in a client note.
"This print should remove any fears over a July rate hike and may assuage fears on September, too. This sets up the market to move higher and to broaden as it does so."
Further gains were tempered after Federal Reserve Chair Kevin Warsh told Congress that one benign inflation reading was not enough to declare victory over inflation.
Investors will closely watch his testimony later on Wednesday, along with U.S. producer price data and the Fed's Beige Book, for further clues on the policy outlook.
In Europe, Germany's 2-year yields DE2YT=RR rose 1 bp to 2.75%, but remained below Tuesday's 2-year high.
Meanwhile the U.S. earnings season kept surprising on the upside following a strong start to the reporting season from some Wall Street banks that buoyed risk sentiment.
Morgan Stanley MS.N reported a rise in second-quarter profit, driven by strong mergers and acquisitions activity despite macroeconomic uncertainty, sending its shares up 2.8% in premarket trading.
BlackRock BLK.N also reported a jump in quarterly profit, as a stock market rally boosted the value of client assets, while healthcare conglomerate Johnson & Johnson JNJ.N beat Wall Street estimates for sales and profit.
The Bank of Canada's policy decision is also due later on Wednesday, with the benchmark rate widely expected to remain unchanged. The Canadian dollar was broadly steady above 1.40.
Oil extended gains on Wednesday as President Donald Trump reimposed a naval blockade on Iranian ports and Iran's Islamic Revolutionary Guard Corps threatened to close export corridors that benefit the U.S. and its allies.
Brent futures LCOc1 climbed 0.7% to $85.3 a barrel.
In China, annual economic growth slowed sharply to 4.3% in the second quarter, missing analysts' expectations as weak domestic demand outweighed stronger production and exports.
A rebound in Chinese retail sales in June, relatively strong nominal GDP and hopes that authorities will respond were the positives for investors.
"I don't think they will be worried enough to announce any big stimulus, but it is going to be targeted, since they are aware that growth is only for the tech areas whereas the broader economy is continuing to underperform," said UOB economist Woei Chen Ho.
China's yuan CNY=CFXS traded at 6.771 to the dollar, just below a one-month high.
Spot gold XAU= was down 0.6% at $4,029.3 per ounce, paring part of Tuesday's more than 2% surge as higher oil prices fuelled inflation concerns and uncertainty over the U.S. rate outlook.
SPY•
