European stocks rose Friday and the euro clung to gains from a 2-cent rally after euro zone policymakers moved to shore up struggling banks and fend off a financial crisis, while markets positioned for U.S. employment data due later.
The European Central Bank announced aggressive liquidity measures on Thursday, throwing a lifeline to lenders whose wholesale funding has dried up as market confidence ebbed, and the European Union said it would present a plan for a coordinated recapitalization of banks by member states.
Gold, oil, copper and equities were all on course to post weekly gains on hopes that Europe's leaders may finally be getting to grips with a two-year-old sovereign debt crisis, although the scale of the task meant caution remained high.
European stock indexes as well as shares in a number of sectors such as banking, insurance, oil, utilities and telecoms seem to be stabilizing, Cholet Dupont strategist Vincent Guenzi said.
This stabilization may be a sign of a strong rebound to come if we get significant progress in the resolution of the euro zone debt crisis.
Fears that the European crisis is heading inexorably toward a default by Greece -- and possibly others -- that could trigger turmoil in the banking system have caused a sharp sell-off in riskier assets since late July.
The FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.5 percent at 945.63 points.
Royal Bank of Scotland and Lloyds Banking Group fell 3.5 and 4 percent respectively after Moody's Investors Service downgraded the credit ratings of the two banks.
S&P 500 index futures were steady, indicating some caution ahead of the non-farm payrolls report due at 1330 GMT, always closely watched for clues on the state of the U.S. economy.
RETURN OF RISK
In a further boost to euro zone market sentiment, European Commission President Manuel Barroso said the EU's executive arm was proposing coordinated action to cleanse banks of toxic assets.
The euro, which has fallen back from a 2011 peak near $1.50 in May, was up slightly around $1.3457, after jumping from a low of $1.3240 on Thursday.
Many market players put the euros rally down to short-covering -- when traders buy back into a currency to realize gains on an earlier bet it would fall -- and believe the shared currency's downtrend remains intact.
Some of the euro/dollar shorts have been squeezed as the market seems to be taken the positive aspects from the ECB measures and hopes of recapitalization of European banks, said Paul Robson, currency strategist at RBS Global Banking.
Going into the U.S. jobs data, a very weak number could see the euro drop while a consensus to marginally weak number could help.
German Bund futures rose after a sharp sell-off in the previous session, as investors looked to U.S. jobs data for fresh insight into the health of the world's largest economy.
While some investors were disappointed the ECB did not also cut interest rates, riskier assets such as equities, commodities and currencies linked to commodity markets, such as the Australian dollar, rallied.
Gold rose 0.6 percent to around $1,659 an ounce, on course for its first week of gains after four straight weeks of declines that saw it shift from a negative to a positive correlation with riskier assets as investors seeking safety turned instead to U.S. Treasuries and the dollar.
Brent crude eased slightly to $105.33 a barrel and U.S. crude was little changed at $82.62, on course for its biggest weekly gain in seven months.
(Additional reporting by Cecile Lefort in Sydney and Lisa Twaronite and Hideyuki Sano in Tokyo; Editing by Kavita Chandran/Ruth Pitchford)