European stocks rallied in rocky trading yesterday ahead of talks by the leaders of France and Germany with Greece to avoid a default and widespread chaos.

Frankfurt’s DAX jumped 3.36 per cent to 5,340.19 points, Paris’ CAC-40 climbed 1.87 per cent to 2,949.14 points and London’s FTSE-100 rose 1.02 percent to 5,227.07 points.

The euro rose to $1.3708 from $1.3682 late on Tuesday. The dollar fell to 76.69 yen from 76.88 on Tuesday. Stocks in Italy and Spain, the eurozone’s third- and fourth-largest economies who have come under pressure in the debt markets, both closed up 2.7 per cent.

US stocks also rose at the open on hopes on the Greek talks.

Towards midday the Dow Jones Industrial Average was up 0.13 per cent to 11,119.85 points, while the broader S&P 500 rose 0.48 per cent to 1,178.50 points, and the tech-heavy Nasdaq Composite gained 0.61 per cent) to stand at 2,547.65 points.

France and Germany said yesterday they were convinced that debt-ridden Greece’s future lay in the eurozone, as Athens vowed to stick to the harsh austerity measures required to get an EU bailout.

The statements came after Greek Prime Minister George Papandreou held a teleconference with German Chancellor Angela Merkel and French President Nicolas Sarkozy on his nation’s debt crisis. Mr Sarkozy and Ms Merkel “are convinced that the future of Greece is in the eurozone”, the French President’s office said in a statement.

“The Greek Prime Minister confirmed his absolute determination to put in place all the necessary measures to carry out all of the commitments made,” it added.

European equities began the day in the red after Moody’s ratings agency downgraded two top French banks – cutting its rating for Credit Agricole bank from Aa1 to Aa2 and Societe Generale’s from Aa2 to Aa3 because of fears over their exposure to Greek sovereign debt. Moody’s left French banking major BNP Paribas on negative watch.