The Dow Jones average was 31 points higher by mid-morning, taking it to 4,056.7, while Treasury bonds had risen by more than half a point.
The transatlantic strength helped the FT-SE 100 index close 38.8 points higher at 3,050.6.
The value of US retail sales fell last month for the first time in nearly a year. Sales were 0.5 per cent lower than in January - whose level was revised up. Car sales fell 1 per cent, and sales of other items fell 0.4 per cent. The annual growth of sales has slowed sharply in recent months.
Mark Cliffe, international economist at HSBC Markets, said: "This further evidence that growth is slowing means the Fed will not be in a hurry to raise interest rates."
Its next policy meeting takes place on 28 March.
The CBI's distributive trades survey for February pointed to the possibility of a fall in the official figures for retail sales in Britain, out today.
The balance of retailers reporting higher sales volumes was, at minus 11, the weakest in more than two years. Alistair Eperon, chairman of the CBI distributive trades panel, said: "The retailers' view is that there is no need for further rate increases."
As official retail sales fell sharply in January, another drop would bring clear evidence of a downward trend in high street spending.
Although the CBI survey reported a disturbing jump in retailers' expectations of higher prices, most analysts thought the fall in sales would make it difficult for price rises to stick.
Ian Shepherdson, an analyst at HSBC, said: "The chance of base rates rising in the short term have been dramatically reduced by recent economic data."
A range of statistics released yesterday were unhelpful to the currency markets, which nevertheless remained quiet. Apart from the weaker sales figures, the US reported that last year's trade deficit was the biggest on record.
The gap was $166.36bn, just beating the 1987 total. The current account as a whole was $155.67bn in the red last year. The deficit widened in the final quarter.
Japan reported an unexpected rise in its February trade surplus, to $10.63bn from $7.5bn in January, when trade was distorted by the Kobe earthquake. Its exports to the US last month were, at $10.1bn, nearly twice the level of imports from the US. The final piece of the international economic jigsaw was the report of a shock increase in prices at the factory gate in Germany.
They rose 0.7 per cent last month, taking them to a level 3.4 per cent higher than a year earlier - a six-year inflation high.
Holger Fahrinkug, at UBS in Frankfurt, said seasonal food prices were the main reason for the jump. Even so, many analysts thought the figures would make the Bundesbank unwilling to cut interest rates at its meeting on Thursday, despite earlier hints that it might consider the move to help stabilise currencies.
The dollar and sterling made small gains against the mark thanks to profit- taking.
Dealers were waiting for a meeting of central bank and finance ministry officials in Paris to end today and for further economic data in a heavy week for statistics.
French presidential hopefuls Edouard Balladur and Lionel Jospin jostled to put forward ideas for discouraging instability in the currency markets - the former suggesting introducing margin requirements for currency dealing, the latter favouring a tax on international capital flows.