European stock markets closed sharply higher yesterday as positive Chinese manufacturing helped to offset concerns over dragging talks on a crucial Greek debt write-down deal.

Dealers said hopes especially of a soft landing for the Chinese economy, ranked number two and the driver of global commodity markets, reassured investors worried that the eurozone debt crisis could spark a new recession. At the same time, they said the markets have been here many times before as far as Greece is concerned, with officials saying a deal with private creditors is close, so a note of caution remained.

In London, the FTSE 100 index of leading shares closed up 1.92 per cent at 5,790.72 points. In Paris, the CAC-40 index jumped 2.09 per cent to 3,367.46 points and in Frankfurt the DAX 30 rose 2.44 per cent to 6,616.64 points.

Other European markets posted similar strong gains, with Milan putting on 2.14 per cent as Madrid added 2.20 per cent.

On the positive side, the prospect of a Facebook listing, which could value the social network group at up to $100 billion, stoked interest and help power Wall Street to solid opening gains.

Additionally, reports that banks would use an upcoming offer of very cheap three-year funds from the European Central Bank to source twice or even three times the nearly €500 billion they took in December added to the positive tone.

Some analysts believe that much of this money could find its way into the markets, easing borrowing costs in the eurozone and eventually giving the economy a boost.