First-time requests for unemployment dropped last week to the lowest level since April 2. The government also says that the economy grew at a 1.3 percent annual rate in the April-June quarter, up from the 1 percent estimate made a month ago.
German lawmakers also voted to expand the powers of Europe's bailout fund.
Shortly after the opening bell, the Dow Jones industrial average is up 207 points, or 1.9 percent, at 11,216. The Standard & Poor's 500 index is up 20, or 1.7 percent, at 1,171. The Nasdaq composite index is up 40, or 1.6 percent, at 2,532.
Earlier, European stocks surged on a combination of surprisingly strong US economic data and the overwhelming approval by Germany's parliament of a bill to strengthen a bailout fund intended to help European countries deal with their debts.
News that the US economy grew by more than previously thought in the second quarter of the year and a surprisingly large drop in weekly jobless claims were the main catalysts behind the advance. Stocks are a leading indicator of future economic activity and the better than expected US economic data has reined in fears over the global economic recovery.
Alongside concerns over Europe's debt crisis, investors have been spooked by a run of weak US economic data over the past couple of months - the result has been huge turmoil in financial markets.
But news that the US economy grew at an annual rate of 1.3 percent in the April-June quarter, up from an estimate of 1 percent made a month ago has calmed some investor fears about the world's largest economy, especially as the improvement largely reflected more consumer spending.
``The quality of the improvement far outweighs the scale of improvement with the US consumer key to future growth,'' said Michael Woolfolk, an analyst at The Bank of New York Mellon. ``The risk for the third quarter is to the upside, with the outside possibility that it could well come in at the upper end of the 2.0-3.0 percent range.''
Further good news emerged from the Labor Department, which found that jobless claims last week dropped 37,000 to a seasonally adjusted 391,000, the lowest level since April 2. It's the first time applications have fallen below 400,000 since Aug. 6. and the figures could prompt investors to upgrade their forecasts for next week's nonfarm payrolls figures for September.
The mood in stock markets had already been largely positive after a clear victory for Chancellor Angela Merkel in a vote on beefing up Europe's bailout fund. More encouraging for the markets, perhaps, was the fact that Merkel did not have to rely on support from opposition parties.
In the short-term, the markets' hope is that the vote in favor of an expanded rescue fund - with 523 lawmakers in favor, 85 against and 3 abstentions - indicates Germany is fully behind efforts to shore up Europe's defenses against a crisis that has already seen three countries bailed out and stoked talk that Greece will default.