European shares and key commodities bounced on Wednesday after ministers agreed to shore up euro zone banks against the spreading debt crisis and an IMF director said the fund might offer support by buying Spanish and Italian bonds.
The euro recovered from losses against the dollar after the International Monetary Fund's European Department Director Antonio Borges said it could invest in peripheral debt alongside the euro zone bailout fund.
World stocks and commodities including Brent crude had slumped in recent sessions on mounting concerns that a debt default by Greece could trigger a banking crisis that would aggravate a worldwide economic slowdown.
Overnight, France and Belgium rescued financial services group Dexia (DEXI.BR) -- heavily exposed to Greek loans and the first European lender to have to be bailed out because of the debt crisis.
European Economic and Monetary Affairs Commissioner Olli Rehn told the Financial Times on Tuesday the region's finance ministers, who have hitherto rejected any concerted bank recapitalization, had a new sense of urgency.
The Dexia rescue also suggested policymakers had become more aware of the seriousness of the threat -- reflected in a three-notch downgrade of Italy by rating agency Moody's overnight -- and that shift in sentiment helped European equities to recover on Wednesday.
Some analysts remained skeptical, however.
This rally may not last. Lots of stocks look cheap. We need a strategy for resolving the sovereign debt crisis in the euro zone. We need a strategy to get on top of the U.S. debt problem, Jeremy Batstone-Carr, strategist at Charles Stanley, said.
Until we get answers, the market can stay cheap. Economic authorities in Europe have continually failed to come up with a robust policy. Now they're in the last-chance saloon.
Shares were also underpinned by IMF director Borges' comments on Italian and Spanish bonds.
U.S. stock index futures rose 0.6 to 0.8 percent, indicating a firm start on Wall Street after a late rally on Thursday pushed the S&P 500 index .SPX to its largest gain in more than a week.
The STOXX Europe 600 share index .STOXX advanced 2.2 percent, with banking shares .SX7P up 2.7 percent. Dexia gained 5.1 percent after losing more than one-third of its value in the previous four sessions.
The pan-European share index, which has lost 19 percent so far this year, carried a 12-month forward price-to-earnings ratio of 8.8 versus the S&P 500's 10.7 and Japan's TOPIX index's .TOPX 11.4, data from Thomson Reuters Datastream showed.
Italy's share benchmark .FTMIB put on 1.9 percent, shrugging off the ratings cut that brought Moody's into line with peer S&P, which cut the country by one notch to single-A last month.
Moody's cited a material increase in funding risks for euro zone countries with high levels of debt and warning that further downgrades were possible.
Adding to the underlying gloom, the euro zone's private sector shrank for the first time in two years in September, contracting faster than first reported as new business dried up while the debt crisis cut expectations for the future to two-year lows, surveys showed on Wednesday.
The euro was up 0.2 percent at $1.3361 though was down 0.1 percent at 102.41 yen. The dollar .DXY was off 0.9 percent against a basket of major currencies.
Yields on 10-year Italian government bonds rose 4.9 basis points to 5.546 percent, while those on 10-year benchmark German Bunds rose 8.1 basis points to 1.803 percent after falling in the previous three sessions.
DETAILS, DETAILS, DETAILS
Many in the foreign exchange market remained firmly negative on the euro, and analysts said if investors sensed that European policymakers continued to drag their feet in solving the debt problems, the common currency could fall more.
Still, while the euro is down 5.6 percent against the yen and 1.9 percent versus the Swiss franc this year, it has lost only 0.1 percent against the dollar.
At this point, there's just been news of discussions about a possible bank recapitalizations, there's no details yet, said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.
There's a high risk of a further sell-off if we don't get details on this soon.
World stocks measured by MSCI All-Country World Index .MIWD00000PUS put on 0.8 percent, after hitting a 15-month low the previous session.
Asian shares outside of Japan .MIAPJ0000PUS added 0.6 percent, though Japan's Nikkei average .N225 fell 0.9 percent.
Copper rose 1.6 percent to trade above $6,900 a tonne, snapping a five-day losing streak, and Brent crude added 1.3 percent to above $101 a barrel after a three-session losing run, while gold eased 0.8 percent.