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Investors around the world chewed over U.S. President Barack Obama's state-of-the-union , as stocks rose and the U.S. dollar dropped to its lowest levels in two months.

Mr. Obama offered corporate tax cuts and a five-year freeze in some domestic spending , which he said would trim $400-billion (U.S.) from budget deficits over a decade. He spoke of putting money into roads, research, education, efficient cars, high-speed rail and other initiatives, and emphasized the importance of transportation and construction projects.

Signs that Washington might get a grip on its immense deficit has the markets betting the Fed will retain faith in its ultra-loose policy when it makes a policy announcement at the end of a two-day meeting Wednesday afternoon.

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Also coming up today: U.S. corporate earnings reports, from companies such as Boeing Co., General Dynamics Corp., Starbucks Corp., Xerox Corp. and United Technologies Corp.

Wall Street was headed higher, with Dow futures rising 0.3 percent to 11,956 and S&P 500 futures up 0.4 percent to 1,292.60.

Copper rallied to $9,370 a tonne, while tin hit a record high of $28,698 a tonne as the market tried to price in a shortage from top exporter Indonesia.

Gold edged higher to $1,335.65 an ounce as its drop to a near three-month low attracted physical buyers back to the market. The main gold exchange-traded fund, the SPDR Gold Trust , recorded its biggest ever one-day outflow on Tuesday.

Oil hovered near $87 a barrel , consolidating losses after falling more than 4 percent in less than a week on mixed economic news and the possibility of increased OPEC production.

In Europe, sentiment was stronger after another successful bond auction by Spain, which calmed worries that it could run into funding problems, and high demand for the European bailout facility's first round of fundraising.

Spain's finance minister also said the country's troubled savings banks will have to meet tougher capital reserve requirements, an effort to ease worries that the government could eventually be saddled with their heavy losses.

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Britain's FTSE 100 was up 1.3 percent at 5,994.32, recovering from the previous day's slide, triggered by data showing the U.K.'s economic recovery ground to a halt in the fourth quarter. Germany's DAX was 1.3 percent higher at 7,148.21, while France's CAC-40 index was up 0.9 percent to 4,055.94.

In Asia, concerns revolved around the possibility that China would soon take more aggressive steps to cool its economy and put a lid on inflation.

Japan's Nikkei 225 stock average closed down 0.6 percent at 10,401.90. Indexes in New Zealand and the Philippines were also down. Hong Kong's Hang Seng gained 0.2 percent to 23,842.24.

South Korea's Kospi index rose 1.1 percent to 2,110.46 on news the economy grew at its fastest pace in eight years in 2010. Gross domestic product rose 6.1 percent last year, marking the best performance since a 7.2 percent surge in 2002.

China's Shanghai Composite index climbed 1.2 percent to 2,708.81. The Shenzhen Composite Index for China's smaller, second market added 1.6 percent to 1,154.42. Markets in Singapore, Taiwan and Indonesia also rose. Australia's stock market was closed for a public holiday.

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About the Author
Deputy head of Audience

Sonali Verma is deputy head of audience at the Globe and Mail. She is a business journalist with more than 20 years of experience, mainly in digital media.She was previously the Globe and Mail’s senior editor in charge of audience engagement, overseeing its homepages as well as social media operations. More

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