Global stocks and crude oil rallied on Thursday on rising hopes Greece will abandon plans to hold a referendum over a euro-zone bailout and after the European Central Bank cut interest rates in a surprise move.

Greece's teetering government backed away from a proposed referendum on staying in the euro, while European leaders talked for the first time of a possible Greek exit to preserve the single currency.

The Greek moves to ditch the referendum buoyed optimism, as they reduced the chance of a disorderly default, analysts said. The ECB rate cut and a drop in U.S. jobless claims also helped feed a bid for riskier assets and drain safe-haven buying.

Trading was volatile across asset classes as markets were rocked by headlines on Greece and comments from new ECB President Mario Draghi, who said the euro zone could enter a mild recession later this year.

Draghi spoke following the ECB's unexpected interest-rate cut, by a quarter point, to 1.25 percent.

Right now, the market just reacts to whatever rumour and whim is out there, going back and forth. What is Greece going to do? What is Germany going to do? What is Merkel saying, what is the meeting doing? said Cliff Draughn, chief investment officer at Excelsia Investment Advisors in Savannah, Georgia.

Sooner or later, Europe will solve the problem. There is going to be some pain in between, but they will solve the problem, Draughn said.

Stocks rose across the board in Europe and an index of euro-zone banks' shares <.SX7E> ranked among the standout gainers -- up 3.3 percent.

MSCI's all-country world index <.MIWD00000PUS> rose 1.4 percent and the FTSEurofirst 300 <.FTEU3> index of top European shares gained 1.9 percent to close at 990.11.

U.S. stocks also bounced in choppy trade following an industry report that showed the pace of growth in the vast U.S. services sector slowed modestly in October to its lowest level since June as new orders declined.

On Wall Street, the Dow Jones industrial average <.DJI> jumped 208.43 points, or 1.76 percent, to close at 12,044.47. The Standard & Poor's 500 Index <.SPX> rose 23.25 points, or 1.88 percent, to end at 1,261.15. The Nasdaq Composite Index <.IXIC> gained 57.99 points, or 2.20 percent, to end at 2,697.97.

The euro rose 0.5 percent to $1.3810, rebounding from earlier losses on the encouraging news out of Greece, which led investors to embrace risk.

Oil prices gained, popping above $110 a barrel.

In London, Brent crude for December delivery settled at $110.83 a barrel, rising $1.49 and ending a four-day losing streak.

In New York, the U.S. crude December contract rose $1.56 to settle at $94.07 a barrel.

The ECB's rate cut, while unexpected, should boost crude prices going forward, said Anthony Rosado, an options broker at GA Global Markets in New York.

U.S. Treasury debt prices fell on the rate cut and government data that showed new claims for U.S. unemployment benefits fell below 400,000 last week for the first time in five weeks, suggesting modest improvement in the labour market.

The benchmark 10-year U.S. Treasury note fell 25/32 in price to yield 2.08 percent.

Gold rose about 1.5 percent, with U.S. gold for December futures gaining $35.50 to end at $1,765.10 an ounce.

(Reporting by Gertrude Chavez-Dreyfuss, Ellen Freilich in New York; Blaise Robinson in Paris; Claire Milhench in London; Writing by Herbert Lash; Editing by Padraic Cassidy and Jan Paschal)