Global equities surged more than 2 percent and the euro rallied against the dollar on Friday after an Italian vote on economic reforms eased fears that its debt burden would jeopardize the euro zone's future.

Italy, the region's third-largest economy, has become the latest focus of a still uncontained crisis that pushed its bond yields sharply higher this week amid fears it could be the next country to need a bailout.

The package of austerity measures demanded by the European Union will now go to the Italian lower house, where it is expected to be approved Saturday. That vote will trigger the resignation of Prime Minister Silvio Berlusconi.

Analysts have feared Italy's potential inability to fund itself poses systemic risk to the euro zone given the size of its economy and the country's status as the world's third-largest government debtor.

Adding to the optimism about Europe's efforts to tackle the debt crisis, former European Central Bank policy-maker Lucas Papademos was sworn in as Greek prime minister, tasked with meeting the terms of a bailout plan to avert bankruptcy.

In Italy, former European Commissioner Mario Monti is widely expected to take over as head of a broad-based national unity government, a move many investors would welcome.

Even as risk appetite returned to markets, analysts said underlying skittishness would keep markets volatile as investors await the outcome of critical events.

The next market test comes on Monday when the country plans to sell 3 billion euros of five-year government bonds.

Once a new government is in place, markets will focus intently on whether Italy quickly and forcefully implements the budget deal, said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

The stakes cannot be higher, with the world's third-largest bond market staring into the abyss.

Italy took over from Greece as the focus of investor angst over Europe's debt crisis. At one point this week, Italian government debt went above 7 percent, a level many investors saw as unsustainable.

The euro was up 1.4 percent at $1.3787.

The FTSEurofirst 300 .FTEU3 index of top European shares close up a preliminary 2.1 percent at 983.73. Shares of Italian lender Intesa Sanpaolo rose 8.8 percent.

The Dow Jones industrial average was up 272.12 points, or 2.29 percent, at 12,165.91. The Standard & Poor's 500 Index was up 25.67 points, or 2.07 percent, at 1,265.36. The Nasdaq Composite Index was up 55.76 points, or 2.12 percent, at 2,680.91.

Financial shares, seen as vulnerable because of their exposure to European debt, were among the best performers. Bank of America Corp. rose 4 percent to $6.27, and JPMorgan Chase & Co. gained 2.7 percent to $33.64. The KBW Bank index climbed 2.6 percent.

World stocks as measured by MSCI gained 2.2 percent.

Brent crude oil futures added 34 cents at $114.05 a barrel, while U.S. light crude futures traded $1.02 higher at $98.80 a barrel.

Spot gold prices rose $26.45, or 1.50 percent, to $1784.70.

The U.S. Treasury market was closed in observance of the Veterans Day holiday.