European shares were up nearly five per cent at midday yesterday, led higher by banks ahead of the US Federal Reserve's interest rate decision later in the day and after China unveiled its own rate cut.
By 11.57 GMT, the pan-European FTSEurofirst 300 index was 5.1 per cent higher at 877.3 points, having touched 881.5 earlier, rising for a second consecutive day after five days of losses.
"I think everybody now is looking for the central banks to take a knife to interest rates and really just cut them very aggressively from here onwards," said Mike Lenhoff, chief market strategist at Brewin Dolphin.
The index has shed 42 per cent so far this year, amid turmoil across the financial markets that has seen banks broken up or nationalised and left investors fretting about the onset of global recession.
"I'm not sure that everyone is looking at this as a turn in the market just yet, but it certainly provides a bit of healthy respite from what has been a fairly dreary, monotonous and tedious bear market," said Mr Lenhoff.
Wall Street marked its second best day ever on Tuesday, with major US stock indexes surging around 10 per cent.
The Federal Reserve is set to announce its rate verdict at 18.15 GMT. In a Reuters survey, primary dealers expected the Fed funds rate will be cut to one per cent from 1.5 per cent.
Japan may also cut borrowing costs this week, a source with knowledge of the matter said. Tokyo's Nikkei average soared 7.7 per cent.
The European banks were the outstanding gainers, with Santander up 9.8 per cent, UBS up 11.3 per cent, and Standard Chartered adding 16.7 per cent.
BBVA rose more than eight per cent after saying nine-month recurrent net profit rose 9.1 per cent to €4.321 billion from 3.962 billion, compared with 4.18 billion forecast in Reuters poll.
Oil and gas producers boosted the market, with BP and Royal Dutch Shell gaining 5.6 and 6.5 per cent, respectively, and Total up 8.8 per cent as US crude oil rallied 5.6 per cent.
Volkswagen, Europe's biggest faller, dived 36.4 per cent after Porsche took steps to ease a squeeze on short-sellers that had more than quadrupled the stock in days and briefly made it the world's most valuable company. Deutsche Boerse meanwhile said it would cut the weighting of shares in the blue-chip German DAX index.
Porsche stock leapt 38.9 per cent.
Analysts said they expected the Fed to cut rates by half a percentage point. Fed fund futures showed a 58 per cent probability of rates coming down to one per cent and a 42 per cent probability of a cut to 0.75 per cent.
This is likely to be followed by cuts in Japan, the eurozone and Britain by the end of next week.
Around Europe, Britain's FTSE 100 added 4.9 per cent, Germany's DAX was flat, and France's CAC rose 6.6 per cent.