Investors bought riskier assets on Thursday, lifting world stocks, emerging market debt and higher-yielding currencies as hopes increased that the worst of the recent credit market storm has blown over.
Stock markets from Shanghai to London posted solid gains, with the Chinese bourse hitting another all-time high. MSCI's main world stock index was up around 1 percent and has recovered 6.5 percent in a week.
It remains, however, around 7 percent off its all time high reached in July just before a global scare about credit and liquidity hit markets.
Other riskier assets also gained. Spreads between emerging market sovereign debt and U.S. Treasuries narrowed 11 basis points while European debt yields rose as investors with drew funds, with an 8.1 basis point increase in the two year schatz.
The market is getting more comfortable ... but confidence can certainly be shattered by any more revelations. I'd think that we'll see some further volatility in the market, said Tony Russell, senior equities adviser at ABN AMRO Morgans.
Many investors have been comforted by actions from central banks to shore up confidence and ensure liquidity, notably last Friday's cut from the U.S. Federal Reserve in the rate it charges banks to borrow from it.
Sentiment in stock markets was also helped by news that Countrywide Financial had received a $2 billion injection on Wednesday from Bank of America Corp, helping the largest U.S. mortgage lender shore up its finances.
Problems in the U.S. mortgage market were the trigger for global credit difficulties and worries about financial stability.
The uncertainty in financial markets also prompted the Bank of Japan to leave rates unchanged at 0.5 percent on Thursday.
Not everyone was bullish, however. I don't believe the crisis is over yet, this is a consolidation phase, said ING strategist Padhraic Garvey.
The pan-European FTSEurofirst 300 index was up more than 1 percent, rising for the fifth session in a row.
Around Europe, the UK's FTSE 100 index rose 1.2 percent, France's CAC 40 more than 1 percent and Germany's DAX 0.9 percent.
Earlier, Tokyo stocks rose sharply. The broad TOPIX index finished up 3 percent or 46.92 points at 1,591.81. The benchmark Nikkei average climbed 2.6 percent or 415.68 points to 16,316.32.
MSCI's main emerging market index, meanwhile, was up 1.9 percent.
On currency markets, the yen fell against the dollar and higher-yielding currencies, a sign that carry trades were back on the agenda.
The yen is a key to the carry trade in which investors sell it to buy assets in other higher-yielding currencies.
The dollar rose 0.50 percent from late Wednesday U.S. trade to 115.90 yen. It jumped as high as 116.08 yen at one point. The euro was up 0.47 percent at 156.96 yen, after rising to the day's high of 157.33 yen earlier in the session.
The euro was steady versus the dollar at $1.3540.
Renewed risk appetite could also be seen on government bond markets where investors shied away from safe havens.
Euro zone government bond prices fell. The two-year Schatz was yielding 4.107 percent, up 8.1 basis points while the 10-year Bund yield was 4.3 basis points up at 4.321 percent.