Global markets staged a relief rally yesterday as Greece's move to enact severe austerity measures to secure an aid package eased fears that the debt crisis will spread across Europe, driving up the euro and fuelling a more than one per cent rise in equities.
With a potential resolution of Greece's debt problems insight, risk premiums eased and crude oil prices rose above $85 a barrel.
Global equities rose more than one per cent after two days of losses, also helped by strong earnings reports and further signs of economic recovery. The Federal Reserve's positive view of the US economy on Wednesday added to an increase in sentiment.
Officials of the European Central Bank, European Union and International Monetary Fund were in Athens to negotiate what could be the largest bailout in history. Sources familiar with the talks said details of a three-year deal would come by Monday.
The news of an expected aid package of up to €135 billion ($180 billion) caused debt yield premiums eased, and the cost of insuring riskier debt dropped as investors grew more confident a deal was in sight.
Uncertainty over the size and timing of a planned aid package for Greece has weighed on markets for weeks, while concerns of spreading sovereign credit risk jumped on Wednesday after Standard & Poor's cut Spain's rating one notch.
On Tuesday, S&P had slashed Greece to junk status and downgraded Portugal, sparking the latest bout of investors' fears the country could default on its debt.
"Concerns about Greece have eased to some extent, but the danger is that there could be new negative news from Portugal or Spain. That (sovereign debt) is a time bomb and nobody knows when its counter reaches zero," said Giuseppe-Guido Amato, strategist at Lang & Schwarz in Frankfurt.
The euro was up 0.2 per cent against the dollar to $1.3243, after earlier hitting a high of $1.3280. A better-than-expected rise in eurozone economic sentiment in April, which could boost consumer spending and consumption, also boosted investors' appetite for risk.
In the United States, data that showed the number of US workers submitting new claims for unemployment benefits fell slightly last week drew mixed views, as it implied only a gradual labour market improvement.
European stocks rose, recovering from the market's worst two-day slide in nearly three months, following a slight easing in Asian equity markets. Wall Street pushed higher.
The FTSEurofirst 300 index of top European shares closed 1.3 per cent higher at 1,070.06 points. Positive corporate results continued to raise investors' risk appetite, with Banco Santander up four per cent after the eurozone's largest bank posted forecast-beating results.