European stocks closed firmer after a week of very sharp gains and the euro strengthened on positive jobs data from the US and growing signs that a coordinated rescue for eurozone banks is in the works.

A day after the European Central Bank and the Bank of England took fresh steps to boost credit, higher-than-expected US jobs data helped ease concerns that the world’s biggest economy was at risk of slipping back into recession.

On the negative side, Moody’s downgraded its credit ratings for a dozen British banks highlighting worries over the banking sector and the need for European governments to help. And moments after close, Fitch’s ratings agency slapped Spain and Italy with ratings downgrades in a stark reminder that the sovereign debt crisis will not go away without some firm action soon.

At the close, London’s FTSE-100 index of leading shares was up 0.23 per cent at 5,303.40 points. In Frankfurt, the DAX gained 0.54 per cent to 5,675.70 points and in Paris the CAC-40 added 0.66 per cent to 3,095.56 points.

Elsewhere in Europe, Milan gained 1.29 per cent, Madrid 1.08 per cent, Lisbon 1.07 per cent and Amsterdam 0.87 per cent.

The euro topped $1.35 for the first time this week, rising to $1.3503 from $1.3433 in New York late on Thursday. The dollar edged up to 76.74 yen from 76.69 yen.

US stocks were off early gains after the US economy created more jobs than expected in September - 103,000, well above forecasts for 60,000, but still not enough to lower the unemployment rate, which has been stuck at 9.1 per cent for three months.

In midday trade, the Dow Jones Industrial Average added 0.42 per cent to 11,169.57 points, the broader S&P 500 gained 0.42 per cent to 1,169.86 points, while the tech-heavy Nasdaq Composite eased 0.08 per cent to 1,163.98 points.

Moody’s downgraded British banks due to the removal and curtailment of government financial support. Affected banks slumped, with Royal Bank of Scotland down 4.8 per cent.

Moody’s said it believed Britain’s government was now more likely to allow smaller banks to fail if necessary. Dexia, the teetering Franco-Belgian bank set to be split up and part-nationalised, was downgraded one-notch by Standard & Poor’s a day after its shares were suspended from trading.

The downgrades come as the European Union seeks swift recapitalisation of the region’s banks to avert debt crisis contagion.

Meanwhile, Asian stock markets closed higher yesterday.

“With moves to inject capital into European banks, there are signs of a brighter outlook... although a full resolution is still far off,” said Hiroichi Nishi, general manager at SMBC Nikko Securities in Tokyo.

The Bank of Japan voted unanimously to keep interest rates unchanged between zero and 0.1 per cent as it continued measures to help safeguard a fragile recovery.

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