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Japan's Nikkei .N225 was up 0.7 percent at 10883.53 points and Australia's benchmark index .AXJO was also higher by 0.2 percent. The MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS added 0.3 percent.

Minutes of the Fed's Jan 25-26 policy session on Wednesday showed officials were more confident on economic recovery, though the job market recovery remained a concern.

Wall Street ended higher with the Dow Jones industrial average .DJI closing half a percent up, helped by strong results from Dell Inc (DELL.O) which beat market estimates, sending its shares up by 11.9 percent.

The MSCI All-Country index rose 0.3 percent to a 30-month peak.

"The mood in global equity markets is extremely positive and if external circumstances don't change much, the current rally can carry on until the Nikkei reaches 11,000," said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.

Japanese shares have gained some 6 percent this year, making it the best-performing Asian market so far in 2011, while Asian stocks outside Japan .MIAPJ0000PUS are down more than 2 percent on the year to date, largely due to inflation worries and outflows from emerging markets into developed ones.

Brent crude surged to near 2-1/2 years highs above $104 a barrel and U.S. crude for March delivery climbed as high as $85.95 a barrel as anti-government protests spread to other countries in the Middle East.

The rising tensions pushed gold prices higher which was set for a fourth consecutive day of gains.

In the currency markets, the dollar was little changed after weakening in the previous session on news that Iranian warships were en route to Syria. The reports added to resurgent geopolitical tensions in the Middle East, sparking a surge in traditional safe-haven currencies such as the Swiss franc.

Sterling was still nursing losses as investors revised expectations for a rate rise after the Bank of England downgraded its economic growth forecast in its quarterly inflation report, even as consumer prices spiked higher.

(Additional reporting by Umesh Desai and Antoni Slodkowski in Tokyo)

(Editing by Kim Coghill)

Stocks were boosted by Dell earnings and deal announcements fueling hope for more gains, but light volume makes the recent move more tenuous.

The market overcame concerns about tensions between Israel and Iran, and indexes slowly climbed back to close near the session's high.

"It seems that there's just a lot of pent-up demand, and the market is very quick to shrug off news that could appear negative," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus in Baltimore.

Still, volume struggled to match the year's average of 7.9 billion shares on the New York Stock Exchange, NYSE Amex and Nasdaq. About 7.5 billion shares changed hands on Wednesday.

The S&P 500 closed above 1,333.58, double the intraday low hit in early March 2009. On a closing level, the market has risen more than 96 percent since March 9, 2009 --a run not seen in such a short period of time since 1936, according to Howard Silverblatt, senior index analyst at Standard & Poor's.

The steep advance on relative low volume has sparked many forecasts for a correction.

"You have still a healthy degree of skeptics out there," Mata said. "You never want the market to be too bullish."

Dell Inc (DELL.O), the world's No. 2 personal computer maker after Hewlett-Packard, flew past Wall Street's profit and margins estimates late on Tuesday, and its shares jumped 11.9 percent to $15.56.

HP shares (HPQ.N) gained 2.1 percent to $48.99.

Two Iranian warships planned to sail through the Suez canal en route to Syria on Wednesday, an Israeli official said, calling it a "provocation" by the Islamic Republic.

The pullback following the comments was another opportunity for money on the sidelines to get back into stocks, Mata said.

The Dow Jones industrial average .DJI gained 61.53 points, or 0.50 percent, to 12,288.17. The Standard & Poor's 500 Index .SPX rose 8.31 points, or 0.63 percent, to 1,336.32. The Nasdaq Composite Index .IXIC added 21.21 points, or 0.76 percent, to 2,825.56.

Advancing stocks outnumbered declines on the NYSE by a ratio of 3 to 1. On the Nasdaq, more than nine stocks rose for every five that fell.

Crude and basic materials shares again gave the market direction, with the energy sector of the S&P 500 .GSPE up 1.3 percent and materials .GSPM up 1.2 percent.

"Participants generally expressed greater confidence that the economic recovery would be sustained," the Fed said in minutes of its January 25-26 policy-setting meeting.

While officials believed downside risks to the recovery were dissipating, the minutes characterized the forecasts policymakers presented as "not greatly changed."

Officials raised their 2011 growth forecast to a range of 3.4 percent to 3.9 percent from their November projection of 3 percent to 3.6 percent.

The U.S. jobless rate was forecast to be in a range of 8.8 percent to 9 percent in the fourth quarter of this year, little changed from the Fed's earlier projection of 8.9 percent to 9.1 percent. Unemployment was seen declining only gradually over the Fed's three-year forecast horizon.

"Overall, meeting participants continued to express disappointment in both the pace of and the unevenness of the improvements in labor markets," the minutes said.

Government data released after the Fed's January meeting showed unemployment dropped to 9 percent that month, putting the jobless rate already at the upper point of the Fed's forecast for the last three months of the year.

The Fed's forecast range for 2011 headline inflation moved only at the low end, shifting to 1.3 percent to 1.7 percent from the 1.1 percent to 1.7 percent anticipated in November. The Fed said it still expects total inflation to remain subdued.

U.S. Treasury debt prices slightly extended losses after the release of minutes.

"It's steady as she goes, but it's not enough to bring down unemployment," said Scott Brown, chief economist at Raymond James in St. Petersburg, characterizing the Fed's assessment of the economy. He said the Fed would likely hold off raising overnight interest rates, which are currently near zero, until early next year.

In a statement it issued at the conclusion of its January meeting, the Fed had noted the brighter outlook for the economy. By unanimous vote, policymakers agreed to remain on course with their plan to buy $600 billion in longer-term Treasury securities by mid-year to boost economic growth.

The minutes showed that some policymakers were uncertain about the impact the bond buying program would have on the economy, but believed it was not right to change course, according to the minutes.

Others said that if growth picked up more strongly than expected, the central bank should consider curtailing the program.

(Reporting by Mark Felsenthal and Pedro da Costa, and Richard Leong in New York, Editing by Chizu Nomiyama)

Concern about tensions between Israel and Iran weighed on the market in late morning trading, but indexes slowly climbed back near the session's highs.

Still, volume was only slightly better than earlier in the week and could struggle to match the year's average of near 8 billion shares traded per day on the New York Stock Exchange, NYSE Amex and Nasdaq.

Dell Inc (DELL.O), the world's No. 2 personal computer maker after Hewlett-Packard, flew past Wall Street's profit and margins estimates late on Tuesday, and its shares jumped 13.4 percent to $15.78.

"It seems that there's just a lot of pent-up demand, and the market is very quick to shrug off news that could appear negative," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus in Baltimore.

Two Iranian warships planned to sail through the Suez canal en route to Syria on Wednesday, an Israeli official said, calling it a "provocation" by the Islamic Republic.

The pullback following the comments was another opportunity for money on the sidelines to get back into stocks, Mata said.

The Dow Jones industrial average .DJI added 63.95 points, or 0.52 percent, to 12,290.59. The Standard & Poor's 500 Index .SPX gained 7.97 points, or 0.60 percent, to 1,335.98. The Nasdaq Composite Index .IXIC rose 22.10 points, or 0.79 percent, to 2,826.45.

The benchmark S&P 500 earlier broke above 1,333.58, double the intraday low hit in early March 2009, and was trading just below that level after midday.

French drugmaker Sanofi-Aventis SA (SASY.PA) agreed to buy Genzyme Corp (GENZ.O) for $20.1 billion in cash. Genzyme shares rose 1.4 percent to $75.32.

In another proposed deal, activist investor Nelson Peltz's Trian Group offered to acquire Family Dollar Stores Inc (FDO.N) for $55 to $60 per share in cash, giving the company an implied value of $7.6 billion. Family Dollar soared 21.7 percent to $53.50.

Trian's bid for Family Dollar helped shares of other discount retailers. Dollar Tree Inc (DLTR.O) was up 2.9 percent to $52.42 while Dollar General Corp (DG.N) rose 12.1 percent to $30.20.

(Editing by Padraic Cassidy)

"Participants generally expressed greater confidence that the economic recovery would be sustained," the Fed said in minutes of its January 25-26 policy-setting meeting.

While officials believed downside risks to the recovery were dissipating, the minutes characterized the forecasts policymakers presented as "not greatly changed."

Officials raised their 2011 growth forecast to a range of 3.4 percent to 3.9 percent from their November projection of 3 percent to 3.6 percent.

The U.S. jobless rate was forecast to be in a range of 8.8 percent to 9 percent in the fourth quarter of this year, little changed from the Fed's earlier projection of 8.9 percent to 9.1 percent. Unemployment was seen declining only gradually over the Fed's three-year forecast horizon.

"Overall, meeting participants continued to express disappointment in both the pace of and the unevenness of the improvements in labor markets," the minutes said.

Government data released after the Fed's January meeting showed unemployment dropped to 9 percent that month, putting the jobless rate already at the upper point of the Fed's forecast for the last three months of the year.

The Fed's forecast range for 2011 headline inflation moved only at the low end, shifting to 1.3 percent to 1.7 percent from the 1.1 percent to 1.7 percent anticipated in November. The Fed said it still expects total inflation to remain subdued.

U.S. Treasury debt prices slightly extended losses after the release of minutes.

"It's steady as she goes, but it's not enough to bring down unemployment," said Scott Brown, chief economist at Raymond James in St. Petersburg, characterizing the Fed's assessment of the economy. He said the Fed would likely hold off raising overnight interest rates, which are currently near zero, until early next year.

In a statement it issued at the conclusion of its January meeting, the Fed had noted the brighter outlook for the economy. By unanimous vote, policymakers agreed to remain on course with their plan to buy $600 billion in longer-term Treasury securities by mid-year to boost economic growth.

The minutes showed that some policymakers were uncertain about the impact the bond buying program would have on the economy, but believed it was not right to change course, according to the minutes.

Others said that if growth picked up more strongly than expected, the central bank should consider curtailing the program.

(Reporting by Mark Felsenthal and Pedro da Costa, and Richard Leong in New York, Editing by Chizu Nomiyama)

Israel's foreign minister said two Iranian warships planned to sail through the Suez canal en route to Syria and hinted at an Israeli response, pushing oil prices back up to $85 a barrel.

Stocks at first showed little reaction to the statement, but slowly began to fall toward sessions lows.

The benchmark S&P 500 earlier broke above 1,333.58, double the intraday low hit in early March 2009, and was trading just below that level after midday.

"With a market that has run as far and fast as this one has, clearly negative headlines, like the ones about Israel and Iran, can have a negative impact," said Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles.

Stocks have been rallying since early September, with the S&P 500 up more than 25 percent in that time.

Underscoring views that technology will continue to be among sectors leading the earnings recovery, Dell Inc (DELL.O), the world's No. 2 personal computer maker, flew past profit and margins estimates. Dell shares jumped 11 percent to $15.45.

French drugmaker Sanofi-Aventis SA (SASY.PA) agreed to buy Genzyme Corp (GENZ.O) for $20.1 billion in cash, boosting Genzyme shares 1.5 percent to $75.38.

The Dow Jones industrial average .DJI gained 36.14 points, or 0.30 percent, to 12,262.78. The Standard & Poor's 500 Index .SPX was up 4.73 points, or 0.36 percent, at 1,332.74. The Nasdaq Composite Index .IXIC rose 12.82 points, or 0.46 percent, to 2,817.17.

The Dow Jones industrial average .DJI was up 35.27 points, or 0.29 percent, at 12,261.91. The Standard & Poor's 500 Index .SPX was up 4.50 points, or 0.34 percent, at 1,332.51. The Nasdaq Composite Index .IXIC was up 12.08 points, or 0.43 percent, at 2,816.43.

In another proposed deal, activist investor Nelson Peltz's Trian Group offered to acquire Family Dollar Stores Inc (FDO.N) for $55 to $60 per share in cash, giving the company an implied value of $7.6 billion. Family Dollar soared 21.75 percent to $53.50.

Merger and acquisition activity has picked up, raising investor hopes it will bring more fresh cash into the market.

"It seems as if the market has a very strong bid underneath stock prices. There seems to be a desire to get invested. So any time there's a pullback, if the next day there's a hint of good news," the market bounces back, said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

Trian's bid for Family Dollar helped shares of other discount retailers. Dollar Tree Inc (DLTR.O) was up 3.18 percent to $52.56 while Dollar General Corp (DG.N) rose 11 percent to $30.01.

(Additional reporting by Ryan Vlastelica; Editing by Dan Grebler)

The core producer price index, which excludes food and energy costs, increased 0.5 percent, the biggest advance since October 2008, the Labor Department said on Wednesday. Economists had expected a 0.2 percent gain.

Investors viewed the figures somewhat warily and bond prices slipped. Economists, however, said it was too soon to panic about inflation with stubbornly high unemployment keeping labor costs subdued.

"The question is whether we are seeing a limited pass-through of commodity price hikes or the beginnings of an inflationary spiral," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

"Wages will be the thing to watch -- there won't be an inflationary spiral unless wage inflation picks up."

The rise in core PPI reflected a jump in drug prices, which accounted for 40 percent of the increase.

Other reports on Wednesday indicated that while growth may be quickening, the recovery remains uneven. Industrial production edged down in January and housing construction continued to bounce along the bottom. But bad weather might have distorted the industrial output data.

The U.S. dollar rose broadly, while stocks gained on above forecast results from technology bellwether Dell and a deal for Sanofi-Aventis SA to buy Genzyme Corp for $20.1 billion in cash.

NO PASS THROUGH TO CONSUMERS

The rise in core PPI comes at a time when a surge in commodity prices has caused most advanced economies to raise red flags on inflation.

The U.S. Federal Reserve has so far shown little concern about price pressures and officials have repeatedly said core consumer inflation remains too low. The central bank is widely expected to complete its planned purchases of $600 billion in government bonds to assist the recovery.

Most economists agree with the Fed's stance on prices. The government is expected to report on Thursday that core consumer prices rose 0.1 percent in January from December.

"Yes, we are seeing input prices go up, companies are seeing those, but they are having a hard time passing them on. There is still a lot of slack in the economy, whether it's high unemployment or high office vacancies," said John Canally, an economist at LPL Financial in Boston.

"The economy is 80 percent services. Economy-wide, raw materials or commodity prices only account for something like 5 percent of input costs and labor is 70 percent."

INDUSTRIAL OUTPUT DIPS

The benchmark S&P 500 rose above 1,333.58, double the intraday low hit in early March 2009.

Dell Inc (DELL.O), the world's No. 2 personal computer maker, flew past profit and margins estimates in the latest show of strength from corporate America that has helped lift stocks. Dell jumped 9.9 percent to $15.28.

French drugmaker Sanofi-Aventis SA (SASY.PA) agreed to buy Genzyme Corp (GENZ.O) for $20.1 billion in cash, pushing up Genzyme shares 1.6 percent to $75.48.

In another proposed deal, activist investor Nelson Peltz's Trian Group offered to acquire Family Dollar Stores Inc (FDO.N) for $55 to $60 per share in cash, giving the company an implied value of $7.6 billion. Family Dollar soared 23.7 percent to $54.40.

Merger and acquisition activity has picked up, raising investor hopes it will bring more fresh cash into the market.

"It seems as if the market has a very strong bid underneath stock prices. There seems to be a desire to get invested. So any time there's a pullback, if the next day there's a hint of good news," the market bounces back, said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

"It's a market that people in general are trying to get back involved with," he said.

The Dow Jones industrial average .DJI rose 73.07 points, or 0.60 percent, at 12,299.71. The Standard & Poor's 500 Index .SPX was up 9.37 points, or 0.71 percent, at 1,337.38. The Nasdaq Composite Index .IXIC put on 23.17 points, or 0.83 percent, at 2,827.52.

Even though the market slipped on Tuesday from 2-1/2-year highs, stocks have been rallying since early September, with the S&P 500 up more than 25 percent in that period.

Trian's bid for Family Dollar helped shares of other discount retailers. Dollar Tree Inc (DLTR.O) was up 4.3 percent to $53.14 while Dollar General Corp (DG.N) rose 13 percent to $30.39.

(Additional reporting by Edward Krudy, editing by Jeffrey Benkoe)

A separate report from the Fed showed industrial production fell unexpectedly in January, largely because of a drop in utilities output as temperatures returned to normal following an unusually cold December.

The core producer price index, excluding food and energy, rose 0.5 percent, the biggest gain since October 2008, the Labor Department said on Wednesday.

The rise, which exceeded economists' expectations for a 0.2 percent gain, reflected a jump in pharmaceutical preparations, which accounted for 40 percent of the increase.

"The price increase might be a little troubling because it suggests that inflation is spreading across all raw materials," said James Meyer, chief investment officer at Tower Bridge Advisors in West Conshohocken, Pennsylvania.

"If you print money and have a stronger economy you're going to have some inflationary pressures."

The rise in core PPI comes at a time when a surge in commodity prices has caused most advanced economies to raise red flags on inflation.

The Federal Reserve has so far shown little concern about a pick-up in price pressures and officials have repeatedly said core consumer inflation remains too low for comfort.

Economists believe that could change.

"The Fed's contention has been that although inflation has been seen overseas, it's not yet impacted the U.S. More to the point, the Fed is not going to be concerned until it spills over into the core reading," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

"What we see from this is that it has indeed spilled into the core and could force the Fed to rethink its outlook for the remainder of the year."

U.S. stock index futures held at higher levels, while government debt prices pared gains. The dollar pared losses against the euro.

The government is expected to report on Thursday the core consumer price index, excluding food and energy, rose 0.1 percent in January from December. Overall CPI is seen up 0.3 percent after rising 0.5 percent in December.

In the Fed's industrial production report, January output fell 0.1 percent after an upwardly revised 1.2 percent jump in December, which had been driven by unseasonably cold weather that spiked heating demand.

The drop was the first decline in output since June 2009 and was well below the median forecast for a 0.5 percent increase in a Reuters poll of economists after December's originally reported 0.8 percent gain.

Utility output fell by 1.6 percent in January after a 4.1 percent leap in December, while mining output fell 0.7 percent. Manufacturing output in January grew just 0.3 percent after an upwardly revised 0.9 percent gain in December.

The acquisition -- which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme's Henri Termeer -- is expected to boost Sanofi's earnings from the first year after completion by giving it a new platform in rare diseases.

Sanofi will pay $74 a share in cash and offer a tradable contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada and production of two other medicines.

The deal's announcement, which confirmed what sources with knowledge of the talks had told Reuters on Tuesday, marks the second-biggest acquisition in biotech history and will help Sanofi offset declining revenue from drugs that have lost, or are set to lose, patent protection.

Sanofi predicted the deal, which is expected to close early in the second quarter, would lift its underlying earnings by between 0.75 and 1.0 euro per share by 2013.

The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 per share in total, depending mainly on the success of Lemtrada.

In theory, that could add $3.8 billion to the price tag, but the market value of the CVR is expected to be deeply discounted given uncertainties about future Lemtrada sales, the long time horizon and the fact many investors will not want to hold such an instrument.

Tim Anderson, an analyst at Sanford Bernstein, said Sanofi would probably end up making payouts of no more than $4 per CVR, or around $1.1 billion, while Viehbacher told reporters that market estimates the CVR would trade at between $2 and $3 "may not be unrealistic."

"What we anticipate is that there will be a lot of sellers of that CVR, which is going to trade like an option," said Jean-Francois Comte, portfolio manager at Paris-based hedge fund Lutetia Capital. "So there might be another arbitrage opportunity on the CVR in the next few days."

VALUE BRIDGE

Shares in Sanofi rose 3 percent by 1245 GMT as investors welcomed the boost to earnings. Vincent Meunier, an analyst at Exane BNP Paribas, said the forecast of a 12 to 16 percent uplift to 2013 earnings was above his expectation of 10 percent.

Genzyme was 1.5 percent higher at $75.40 in pre-market trade on Nasdaq.

The first $1 related to the CVR will be paid out if specified production levels are met in 2011 for Cerezyme and Fabrazyme -- two drugs for Gaucher and Fabry disease.

The bulk of the potential payments, however, are linked to Lemtrada and will kick in if that drug wins approval in multiple sclerosis and exceeds various sales milestones, which run up to $2.8 billion.

"I think the CVR was an extremely important tool to bridge differences in value," Viehbacher said.

French drugmaker Sanofi-Aventis SA (SASY.PA) agreed to buy Genzyme Corp (GENZ.O) for a sweetened $74 a share as merger and acquisition activity continued to bring fresh cash into the market. Its share rose 1.6 percent to $75.70 premarket.

Dell Inc (DELL.O), the world's No. 2 personal computer maker, flew past profit and margins expectations in the latest show of strength from corporate America that has helped lift stocks. Its shares jumped 6.9 percent at $14.87 premarket.

"There are a few dynamics at play," said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York. "Number one, you've had a very strong earnings season. Number two, M&A is clearly picking up."

Billionaire investor Nelson Peltz's Trian Group offered to acquire Family Dollar Stores Inc (FDO.N) for $55 to $60 per share in cash, giving the company an implied value of $7.6 billion. Family Dollar advanced 28.2 percent to $56.35.

Comcast Corp (CMCSA.O) reported stronger quarterly earnings on surging ad sales and upgrading customers to higher-priced packages. The shares rose 5.6 percent to $25.50 premarket.

S&P 500 futures rose 4 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures jumped 33 points, and Nasdaq 100 futures added 6 points.

The FTSEurofirst 300 index of leading European shares .FTEU3 added 0.3 percent after Asian stocks closed up overnight, with Japan's Nikkei .N225 climbing to a nine-month high.

Economists expect January U.S. producer prices to have risen by 0.8 percent overall and 0.2 percent, excluding food and energy, according to a Reuters poll. The data, due at 8:30 a.m. EST, comes as investors grow concerned about signs of inflationary pressures.

Some softening is expected in January industrial output, which is forecast to rise by 0.5 percent, compared with the previous month's 0.8 percent increase. The data is due at 9:15 a.m. EST.

The release at 2 p.m. EST of minutes of the Federal Reserve's Federal Open Market Committee's January meeting may show some discussion of the Fed's bond buying program being tapered off.

U.S. stocks slipped off 2-1/2-year highs on Tuesday as U.S. retail sales data cast doubts on a rebound in consumer spending, a vital part of the economic recovery.

(Editing by Jeffrey Benkoe)

The acquisition -- which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme's Henri Termeer -- is expected to boost Sanofi's earnings from the first year after completion by giving it a new platform in rare diseases.

Sanofi will pay $74 a share in cash and offer a tradable contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada and production of two other medicines.

The deal's announcement, which confirmed what sources with knowledge of the talks had told Reuters on Tuesday, marks the second-biggest acquisition in biotech history and will help Sanofi offset declining revenue from drugs that have lost, or are set to lose, patent protection.

Sanofi predicted the deal, which is expected to close early in the second quarter, would lift its underlying earnings by between 0.75 and 1.0 euro per share by 2013.

The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 per share in total, depending mainly on the success of Lemtrada.

In theory, that could add $3.8 billion to the price tag, but the market value of the CVR is expected to be deeply discounted given uncertainties about future Lemtrada sales, the long time horizon and the fact many investors will not want to hold such an instrument.

Tim Anderson, an analyst at Sanford Bernstein, said Sanofi would probably end up making payouts of no more than $4 per CVR, or around $1.1 billion, while Viehbacher told reporters that market estimates the CVR would trade at between $2 and $3 "may not be unrealistic."

"What we anticipate is that there will be a lot of sellers of that CVR, which is going to trade like an option," said Jean-Francois Comte, portfolio manager at Paris-based hedge fund Lutetia Capital. "So there might be another arbitrage opportunity on the CVR in the next few days."

VALUE BRIDGE

Shares in Sanofi rose 3 percent by 1245 GMT as investors welcomed the boost to earnings. Vincent Meunier, an analyst at Exane BNP Paribas, said the forecast of a 12 to 16 percent uplift to 2013 earnings was above his expectation of 10 percent.

Genzyme was 1.5 percent higher at $75.40 in pre-market trade on Nasdaq.

The first $1 related to the CVR will be paid out if specified production levels are met in 2011 for Cerezyme and Fabrazyme -- two drugs for Gaucher and Fabry disease.

The bulk of the potential payments, however, are linked to Lemtrada and will kick in if that drug wins approval in multiple sclerosis and exceeds various sales milestones, which run up to $2.8 billion.

"I think the CVR was an extremely important tool to bridge differences in value," Viehbacher said.

* Dell Inc (DELL.O), the world's No. 2 personal computer maker, flew past profit and margins expectations in the latest show of strength from corporate America that has helped lift stocks. Its shares jumped 6.6 percent at $14.83 in premarket trading.

* French drugmaker Sanofi-Aventis SA (SASY.PA) agreed to buy Genzyme Corp (GENZ.O) for a sweetened $74 a share as mergers-and-acquisitions activity continued to bring fresh cash into the market in a sign that companies are seeing value. Its share rose 1.9 percent to $75.70 premarket.

* "There are a few dynamics at play," said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York. "Number one, you've had a very strong earnings season. Number two, M&A is clearly picking up."

* In other merger news, billionaire investor Nelson Peltz's Trian Group offered to buy Family Dollar Stores Inc (FDO.N) for $55 to $60 per share in cash, giving the company an implied value of $7.6 billion. Family Dollar jumped 25.2 percent to$55.05.

* S&P 500 futures rose 4.3 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures jumped 33 points, and Nasdaq 100 futures added 6.25 points.

* The FTSEurofirst 300 index of leading European shares .FTEU3 was up 0.3 percent after Asian stocks closed up overnight, with Japan's Nikkei .N225 climbing to a nine-month high.

* Economists expect January U.S. producer prices to have risen by 0.8 percent overall and up 0.2 percent, excluding food and energy, according to a Reuters poll. The data, due at 8:30 a.m. EST, comes as investors grow concerned about signs of inflationary pressures.

* Some softening is expected in January industrial output, which is forecast to rise by 0.5 percent, compared with the previous month's 0.8 percent increase. The data is due at 9:15 a.m. EST.

* The release later this afternoon of minutes of the Federal Reserve's Federal Open Market Committee's January meeting may show some discussion of the Fed's bond buying program being tapered off.

* U.S. stocks slipped off 2-1/2-year highs on Tuesday as U.S. retail sales data cast doubts on a rebound in consumer spending, a vital part of the economic recovery.

(Editing by Jeffrey Benkoe)

The acquisition -- which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme's Henri Termeer -- is expected to boost Sanofi's earnings from the first year after completion by giving it a new platform in rare diseases.

Sanofi will pay $74 a share in cash and offer a tradable contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada and production of two other medicines.

The deal's announcement, which confirmed what sources with knowledge of the talks had told Reuters on Tuesday, marks the second-biggest in biotech history and will help Sanofi offset declining revenue from drugs that have lost, or are set to lose, patent protection.

Sanofi predicted the deal, which is expected to close early in the second quarter, would lift its underlying earnings by between 0.75 and 1.0 euro per share by 2013.

The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 per share in total, depending mainly on the success of Lemtrada.

In theory, that could add $3.8 billion to the price tag, but the market value of the CVR is expected to be deeply discounted given uncertainties about future Lemtrada sales, the long time horizon and the fact many investors will not want to hold such an instrument.

Tim Anderson, an analyst at Sanford Bernstein, said Sanofi would probably end up making payouts of no more than $4 per CVR, or around $1.1 billion, while Viehbacher told reporters that market estimates the CVR would trade at between $2 and $3 "may not be unrealistic."

"What we anticipate is that there will be a lot of sellers of that CVR, which is going to trade like an option," said Jean-Francois Comte, portfolio manager at Paris-based hedge fund Lutetia Capital. "So there might be another arbitrage opportunity on the CVR in the next few days."

VALUE BRIDGE

Shares in Sanofi rose 3.3 percent by 1035 GMT as investors welcomed the boost to earnings. Vincent Meunier, an analyst at Exane BNP Paribas, said the forecast of 12 to 16 percent uplift to 2013 earnings was above his expectation of 10 percent.

The first $1 related to the CVR will be paid out if specified production levels are met in 2011 for Cerezyme and Fabrazyme -- two drugs for Gaucher and Fabry disease.

The bulk of the potential payments, however, are linked to Lemtrada and will kick in if that drug wins approval in multiple sclerosis and exceeds various sales milestones, which run up to $2.8 billion.

"I think the CVR was an extremely important tool to bridge differences in value," Viehbacher said.

His decision to buy Genzyme underscores large drugmakers' growing reliance on biotech to reinvigorate their pipelines. It follows AstraZeneca's acquisition of MedImmmune in 2007, Eli Lilly buying Imclone in 2008 and Roche's record buy of the rest of Genentech in 2009.

At 0952 GMT, futures for the Dow Jones, S&P 500 and Nasdaq were all up 0.4 percent.

The FTSEurofirst 300 .FTEU3 index of leading European shares was up 0.4 percent at 1,185.06 points, with French bank Societe Generale (SOGN.PA) and Netherlands-based brewer Heineken (HEIN.AS) up 4.3 and 4.6 percent respectively after strong results.

U.S. producer prices are expected to have risen by 0.8 percent overall and 0.2 percent excluding food and energy, according to analysts polled by Reuters. IFR sees the overall rate being lifted by a 2.2 percent rise in energy, slightly slower than December's 3.7 percent rise due to less inflationary seasonal adjustments in gasoline, and a 1.0 percent rise in food.

Some softening is expected in January industrial output, which is forecast to rise by 0.5 percent compared with the previous month's 0.8 percent increase.

Housing starts, are expected to have risen by 11,000 to 540,000, while building permits probably fell.

The release of FOMC Minutes from the Federal Reserve's January meeting may show some discussion of the QE2 program being tapered off.

Like other media companies, such as Time Warner (TWC.N) and News Corp (NWSA.O), CBS (CBS.N) is expected to enjoy a strong rebound in advertising - one that shows no signs of abating. Analysts on average are expecting CBS, which is the No. 1 watched broadcast network in the United States, to report a 10 percent rise in fourth-quarter revenue.

Abercrombie & Fitch (ANF.N) also reports earnings.

French drugmaker Sanofi-Aventis (SASY.PA) agreed to buy Genzyme (GENZ.O) with a sweetened $20.1 billion cash offer, plus payments tied to the success of the U.S. biotech group's drugs, the companies said.

Trian Group offered to buy Family Dollar Stores (FDO.N) for $55 to $60 per share in cash as billionaire investor Nelson Peltz bet that low-income Americans will watch their pennies for some time yet.

U.S. stocks slipped off 2-1/2-year highs on Tuesday. U.S. retail sales data cast doubts on a rebound in consumer spending, a vital part of the economic recovery.

The Dow Jones industrial average .DJI lost 0.34 percent; the Standard & Poor's 500 Index .SPX fell 0.32 percent; the Nasdaq Composite Index .IXIC slipped 0.46 percent.

Dell Inc (DELL.O), the world's No. 2 personal computer maker after Hewlett-Packard (HPQ.N), flew past profit and margins expectations as large and small businesses continued to spend on new technology hardware. Its shares jumped 5 percent to $14.60 in after-hours trading.

(Reporting by Brian Gorman; Editing by Erica Billingham)

The acquisition -- which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme's Henri Termeer -- is expected to boost Sanofi's earnings from the first year after completion by giving it a new platform in rare diseases.

Sanofi will pay $74 a share in cash plus a tradable contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada and production volumes of two other medicines.

The deal, whose announcement confirmed what sources with knowledge of the talks had told Reuters on Tuesday, is the second-biggest in biotech history and will help Sanofi compensate for declining revenue from drugs that have lost, or are set to lose, patent protection.

Sanofi also predicted the deal, which is expected to close early in the second quarter, would lift its underlying, or "business," earnings by 0.75 to 1.0 euro per share by 2013.

The $20.1 billion cash sum is based on 272.5 million Genzyme shares on a diluted basis.

The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 in total, depending mainly on the success of Lemtrada.

In theory, that could add $3.8 billion to the price tag but the market value of the CVR is expected to be deeply discounted given the long time horizons and the fact many short-term investors and index funds are likely to move quickly to sell.

Market estimates that the CVR would trade at around $2-3 "may not be unrealistic," Viehbacher told reporters.

Shares in Sanofi rose 3.3 percent in early trade as investors welcomed the boost to earnings the deal would deliver. Vincent Meunier, an analyst at Exane BNP Paribas, said the forecast 12-16 percent uplift to 2013 earnings was above his expectation of 10 percent.

VALUE BRIDGE

The first $1 related to the CVR will be paid out if specified production levels are met in 2011 for Cerezyme and Fabrazyme -- two drugs for Gaucher and Fabry disease.

The bulk of the potential payments, however, are linked Lemtrada and will kick in if that drug wins approval in multiple sclerosis and exceeds various sales milestones, which run up to $2.8 billion.

"I think the CVR was an extremely important tool to bridge differences in value," Viehbacher said.

Genzyme was the first company to show that money could be made by making drugs for diseases with small patient populations. In 2009 it generated revenue of $4.5 billion, enough to replace roughly a third of the sales Sanofi is expected to lose through 2013 to generic competition.

Shares elsewhere in Asia .MIAPJ0000PUS fell slightly and U.S. oil prices recovered to nearly $85 a barrel partly due to a surprise drop in weekly crude stocks.

Stocks in emerging markets in Asia have underperformed those in developed countries this year. Underscoring that trend, MSCI's Japan share index .MIJP00000PJP has risen around 7.5 percent this year, compared with a drop of more than 2 percent in MSCI's Asia Pacific share index excluding Japan.

But some analysts remain skeptical that such a trend will continue for long.

Rodrigo Zorrilla, head of markets Asia-Pacific, Citigroup, said some $10 billion of funds had moved from emerging market dedicated funds to the United States during the first two weeks of February.

"The question everybody is asking is whether that is the reversal of a trend of the bullish emerging market story or is that just a rebalancing of portfolio," Zorrilla said, adding that he supported the second view.

"We think the fundamentals are still very strong in Asia. And while there are some scares in the market relating to the political issues in the Middle East and inflation concerns around the world, as soon as the dust settles we will see that trend (of outflows) to slow down and stop."

INFLATION REPORT EYED

Sterling rallied to a 5- month peak against a currency basket after data on Tuesday showed inflation in Britain jumped to 4 percent, twice the Bank of England's target, prompting Governor Mervyn King to acknowledge that rates might rise more rapidly than economists had expected.

Analysts now expect a rate rise in May and the next market focus is the BoE's inflation report due at 1030 GMT.

Yuuki Sakasai, a strategist at Barclays Capital, said the inflation report would support King's comments overnight that suggested an early rate increase.

"But we do think that King is likely to use his news conference later on to warn against aggressively pricing in rate hikes. So the pound could gain on the report and fall on King's comments. On the whole we think risk is skewed to the downside," he said, adding that the pound could fall to around $1.60.

Sterling last traded at around $1.6150, compared with a high of $1.6170 overnight. The pound has gained some 3 percent against the U.S. dollar so far this year.

The euro edged up against the dollar, standing at around $1.3520 as of 0544 GMT.

Against the yen, the dollar last traded at around 83.75, not far from an eight-week high of around 83.90 yen hit the previous day, helped by the recent rise in U.S. Treasury yields.

agreed to buy Genzyme Corp with a sweetened $20.1 billion cash offer, plus payments tied to the success of the U.S. biotech group's drugs, the companies said on Wednesday.

The acquisition -- which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme's Henri Termeer -- is expected to boost Sanofi's earnings from the first year after completion by giving it a new platform in rare diseases.

Sanofi will pay $74 a share in cash plus a tradable contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada and production volumes of two other medicines.

The deal, whose announcement confirmed what sources with knowledge of the talks had told Reuters on Tuesday, is the second-biggest in biotech history and will help Sanofi compensate for declining revenue from drugs that have lost, or are set to lose, patent protection.

Sanofi also predicted the deal, which is expected to close early in the second quarter, would lift its underlying, or "business," earnings by 0.75 to 1.0 euro per share by 2013.

The $20.1 billion cash sum is based on 272.5 million Genzyme shares on a diluted basis.

The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 in total, depending mainly on the success of Lemtrada.

In theory, that could add $3.8 billion to the price tag but the market value of the CVR is expected to be deeply discounted given the long time horizons and the fact many short-term investors and index funds are likely to move quickly to sell.

Market estimates that the CVR would trade at around $2-3 "may not be unrealistic," Viehbacher told reporters.

Shares in Sanofi rose 3.3 percent in early trade as investors welcomed the boost to earnings the deal would deliver. Vincent Meunier, an analyst at Exane BNP Paribas, said the forecast 12-16 percent uplift to 2013 earnings was above his expectation of 10 percent.

VALUE BRIDGE

The first $1 related to the CVR will be paid out if specified production levels are met in 2011 for Cerezyme and Fabrazyme -- two drugs for Gaucher and Fabry disease.

The bulk of the potential payments, however, are linked Lemtrada and will kick in if that drug wins approval in multiple sclerosis and exceeds various sales milestones, which run up to $2.8 billion.

"I think the CVR was an extremely important tool to bridge differences in value," Viehbacher said.