NEW YORK (CNN/Money) - U.S. stocks pushed higher Tuesday morning in a knee-jerk reaction to news that the threat of a U.S.-Iraq confrontation may be postponed for the time being, although a warning from McDonald's tempered the early gains.

The latest development boosted stocks overseas, sending Tokyo's Nikkei index to a triple-digit gains. The dollar strengthened against the yen and the euro.

Around 9:35 a.m. ET, the Dow Jones industrial average rose 85.65 to 8,465.63. The Nasdaq composite gained 20.80 to 1,296.98, while the Standard & Poor's 500 index added to 9.53 to 900.63.

After intense U.S. and international pressure, Iraq said it would allow unfettered access to weapons inspectors. Iraq made the offer Monday in a letter handed over to the United Nations.

However, the Bush administration greeted the development with skepticism, saying the move may be a ploy by Iraqi leader Saddam Hussein to divide the U.N. Security Council over a resolution allowing military action against Saddam's regime.

Market watchers also appeared to question whether a rally on the back of the Iraq news is worthwhile.

"What's gonna happen here is you're going to see a cat and mouse game between Bush and Iraq for some time. I suspect that a month from now we'll be back to where we were yesterday before the letter came out," James Awad, a money manager at Awad Asset Management, told CNNfn's CNNmoney Morning.

"The market doesn't like uncertainty, so it's going to try to figure this out. We could see investors using this opportunity to do some weeding of their portfolios," Awad added.

Software maker Oracle (ORCLE: Research, Estimates) steals the earnings spotlight Tuesday. Analysts forecast a profit of 7 cents per share in its fiscal first quarter, down from 9 cents a share a year ago. But perhaps more important is what Oracle says about business prospects for the coming months, given that the company has seen its revenue declines 5 out of the last 6 quarters.

Fast-food chain McDonald's (MCD: down $0.88 to $20.81, Research, Estimates) lowered its third-quarter and 2002 outlook, citing lower-than-expected sales in the United States and Europe.

Brokerage UBS Warburg slashed its earnings forecast for Oracle to 36 cents from 40 cents a share for 2003 and to 39 cents from 47 cents for 2004, ahead of the report.

Stocks rallied in Asia overnight and at midday in Europe as investors welcomed the Iraq news. The main market gauges in Hong Kong and Tokyo both jumped more than 2 percent.

With the war premium drained away, Treasurys fell, pushing the benchmark 10-year note up to 3.95 percent from 3.91 percent late Monday.

Oil prices slumped after the Iraq news, with Brent crude for November delivery down 62 cents to $27.90 in London, where gold also lost ground.

In the morning's economic report, manufacturing activity in August disappointed. Industrial production fell 0.3 percent in the United States last month, the Federal Reserve said, versus economists' forecasts for a 0.2 percent increase.