The Stoxx Europe 600 rose 0.4% recently, led by banking stocks. Futures pointed to a 0.1% opening gain for the Dow Jones Industrial Average, putting the blue-chip index on track to close at a record high for a fifth consecutive session.
Stocks in Asia were mostly higher, with the Nikkei Stock Average climbing 1% and Hong Kong’s Hang Seng Index rising 1.2%.
In testimony to lawmakers on Tuesday, Ms. Yellen reeled off a longer list of positives regarding the economy than areas of concern. She also suggested the Fed could raise interest rates as soon as its March meeting—a possibility investors had largely discounted so far.
Low interest rates have helped underpin stock and bond prices in recent years. Still, many investors say the kind of gradual path of rate rises the Fed has signaled amid a growing economy should not derail major stock indexes, and would be positive for financial stocks that tend to benefit from higher rates.
“It’s the reason for the Fed hiking, and the reason at the moment is all positive,” said Iain Stealey, a portfolio manager at J.P. Morgan Asset Management.
“This time it’s the Fed reacting to the strong economic data,” Mr. Stealey said.
The yield on the 10-year Treasury note was steady at 2.474% on Wednesday after rising on Tuesday, a move that was consistent with increased expectations of rate rises. Bond yields rise as prices fall.
The WSJ Dollar Index, which measures the greenback against a basket of currencies, was up 0.2% on Wednesday after edging higher Tuesday. The greenback tends to gain on expectations of higher interest rates that make dollar-denominated assets more attractive to yield-hunting investors.
The probability of a Fed rate rise in March implied by futures markets gained slightly to 17.7% from 13.3% the previous day, according to CME Group data.
Mr. Stealey said he thinks current market pricing underestimates the number of rate rises that are likely to come this year. He is betting on three to four rate increases, most likely starting at the Fed’s June meeting.
Later Wednesday, investors will parse a series of new data for further clues on the health of the U.S. economy. Reports on retail sales, consumer prices and industrial production are all due to be released.
“The near-term outlook for the U.S. is fairly positive,” said Jeff Boswell, a portfolio manager focusing on credit markets at Investec Asset Management.
“A real risk, not just for credit markets but markets in general, is the economy runs too hot,” he added, which could force the Fed to respond by raising interest rates aggressively.
Gains in Europe were led by banking stocks. The Stoxx Europe 600 Banks subindex was up 1.7% recently. Shares in French lender Credit Agricole SA rose 5.6% after the French bank reported a strong rise in fourth-quarter profit excluding one-off write-downs at its domestic retail arm. Other European lenders saw their stock price rise, with Deutsche Bank AG up 3.2%.
In Japan, the expectation of higher bond yields boosted insurers; MS&AD Insurance Group Holdings Inc. and Dai-ichi Life Holdings Inc. rose over 4% to respective 18- and 15-month highs. However, Toshiba Corp. slid a further 9% on the news that the company is increasing its anticipated write-down for its nuclear business to $6.3 billion.
Meanwhile, SoftBank Group rose 1.6% after it agreed to buy asset manager Fortress Investment for $3.3 billion, as part of a move by the Japanese technology giant to transform itself into one of the world’s largest investment firms.
Elsewhere, Australia’s S&P/ASX 200 rose 0.9% as Commonwealth Bank posted a record fiscal first-half profit and raised its dividend. It climbed 2.4% and fueled gains for the other Big Four banks; collectively, they account for about a third of the index’s weighting. China’s Shanghai Composite Index edged down 0.2%.
In commodities, Brent crude oil prices declined 0.4% to $55.73 a barrel. Gold rose 0.1% to $1,227 an ounce.
— Ese Erheriene, Noemie Bisserbe, Timothy W. Martin and Kosaku Narioka contributed to this article.
Article written by CHRISTOPHER WHITTALL via WSJ.com