Easier European bank-to-bank lending rates and hopes a batch of U.S. data would confirm an improving economic picture, lifted world stocks and the euro on Thursday, but concerns that Europe's debt crisis could intensify kept a lid on the rises.
U.S. stock index futures also pointed to a higher open on Wall Street with the key S&P 500 index on track to record its third straight day of gains.
The final reading on third-quarter GDP, which is expected to confirm a 2.0 percent annualized pace of growth, will be key to sentiment. Investors will also be watching weekly jobless claims, the Thomson Reuters/University of Michigan Surveys of Consumers and the November report on leading economic indicators from the Conference Board.
In Europe, bank stocks were among the top gainers on sharemarkets after Wednesday's first-ever three-year tender by the European Central Bank drew bids for a record 489 billion euros ($638 billion) for the low interest rate loans from 523 banks, well above the 310 billion euro take-up forecast.
The scale of the funding operation initially exacerbated concerns about the health of the financial system appeared to be easing pressure on the banks, though concerns remain that it offers no fundamental fix for the region's debt problems.
In the longer-term the liquidity provided yesterday is not going to solve the debt crisis, it is not going to help southern European countries with their problems in getting control of their public debt, said Niels Christensen, FX strategist at Nordea.
Key euro zone bank-to-bank lending rates fell in response to the lending operation.
Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending, fell to 1.410 percent from 1.416 percent on the prospect of a flood of new cash entering the financial system. Longer-term rates also fell.
However, U.S. dollar funding costs for euro zone banks rose further as the supply of greenbacks to money markets remained scarce, but this was seen as partly due to year-end pressures.
Overall, we view the large uptake (at the ECB tender) as positive for the European banks. Leaving aside whether it is good policy or not, it removes funding risk, adds to profits, and also adds to retained earnings and capital, Deutsche Bank analysts wrote in a note.
The euro was up just 0.1 percent to $1.3060 after hitting a session high of $1.3120 in early trade. The single currency is holding steady above an 11-month low of $1.2945 hit last week with traders seeing major support around $1.30, the December 14 low.
In the share market the pan-European FTSEurofirst 300 index gained around 1.1 percent but is still set to end the year with over a 12 percent loss. The Stoxx Europe 600 bank index <.SX7P> was up 1.5 percent and has gained over 10 percent in the past month.
Miners and oils, which perform well when economic growth is strong, were also among the main movers, with the STOXX Europe 600 Basic Resources index <.SXPP> and the STOXX Europe 600 Oil & Gas index <.SXEP> both up 1.9 percent.
Global stocks, as measured by MSCI world equity index <.MIWD00000PUS> edged up 0.25 percent, on track for a fall of about 12 percent in 2011.
Investors are winding down for year-end and trading volumes are set to dwindle but the threat of mass credit ratings downgrades for the euro zone countries is still hanging over the market.
Euro zone debt markets are expected to come under fresh pressure with some 230 billion euros of bank bonds, up to 300 billion in government bonds, and more than 200 billion euros in collateralized debt all maturing in the first quarter of 2012.
ITALIAN CONFIDENCE VOTE
In debt markets attention was focused on Italy where a vote of confidence is due in the upper house on Prime Minister Mario Monti's government to seal approval of a 33-billion euro ($43 billion) austerity package.
The package passed in the lower house last week and is expected to succeed just as easily in the upper house. Were Monti to lose the vote, his government would collapse.
Italian 10-year bond yields were little changed ahead of the vote at around 6.8 percent after the ECB was forced to step back into the secondary market on Wednesday as yields jumped higher in the wake of the ECB's loan tender.
Commodities markets were muted in thinning pre-holiday trade, with London Metal Exchange copper up about 0.9 percent at $7,520 a ton and Brent crude oil gained around 0.3 percent to around $108.03 a barrel.
(Additional reporting by Nia Williams and Blaise Robinson; Editing by Toby Chopra, Ron Askew)