Global equities rose for a fourth straight day on Friday, but the euro slid as hope Europe was finally getting a grip on the region's debt crisis was offset by lingering fears Greece is still at risk of default.
The Nasdaq stock market posted its biggest weekly advance since July 2009, and gains elsewhere in global equity markets suggested risk aversion has dissipated.
The euro headed for its best week in eight against the U.S. dollar, even as it slipped 0.7 percent to $1.3785 on Friday. The announcement on Thursday that the world's leading central banks will boost short-term dollar funding for European banks facing a dollar shortage buoyed the euro.
The market seems to be a little bit more reassured that (their) support will not allow for major disruption in Europe, said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion in assets.
A sharp decline in French and Italian banking stocks, along with the euro's slide, showed caution still lingers despite encouraging signs of growing efforts to resolve the debt crisis.
But even though central bank support for funding European banks eased fears that Greece's fiscal woes might bring down the financial system in Europe, no one suggested the crisis was fully resolved.
There is still a lot of open-ended issues out there, which means this situation will remain pretty fluid, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
All of what we just gained in the last five trading sessions could be given back, Luschini said, referring to Wall Street, whose rally has surpassed by a day the rally in European stock markets.
The Dow Jones industrial average <.DJI> closed up 75.91 points, or 0.66 percent, at 11,509.09. The Standard & Poor's 500 Index <.SPX> gained 6.90 points, or 0.57 percent, at 1,216.01. The Nasdaq Composite Index <.IXIC> added 15.24 points, or 0.58 percent, at 2,622.31.
MSCI's all-country world equity index <.MIWD00000PUS> rose 0.7 percent, while the FTSE Eurofirst index <.FTEU3> of top regional European shares closed up 0.6 percent at 937.85.
A rally in banks stocks lost steam, however, and the STOXX Europe 600 Banks index <.SX7P> finished up 0.3 percent after paring earlier strong gains.
U.S. bank stocks also slid, with the KBW Bank index <.BKX> off 0.4 percent.
Next week's meeting of the Federal Reserve came into view, amid speculation policy makers might provide further stimulus to the economy.
The news yesterday that central banks are offering dollar liquidity to European lenders is regarded as being the start of an accelerated process in addressing the debt crisis, said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
With the Fed meeting next week, (the ECB news) sort of served as a threshold. Investors are now thinking that we have entered a process toward additional monetization.
Markets shrugged off a survey that showed even though U.S. consumer sentiment inched up in early September, Americans remained gloomy about the future, with a gauge of expectations falling to the lowest level since 1980.
U.S. Treasury securities edged higher.
The benchmark 10-year U.S. Treasury note was up 6/32 in price to yield 2.06 percent.
Brent crude fell, reversing earlier gains, as the euro weakened and the consumer outlook fell to a 31-year low, according to a preliminary survey of consumer sentiment by Thomson Reuters/University of Michigan.
Brent crude for November settled down 8 cents at $112.22 a barrel.
U.S. crude took a bigger fall, settling down $1.44 a barrel to $87.96.
Oil investors have to be getting worried about global demand going forward, and the risk of contagion in Europe from Greece to other economies, said Richard Ilczyszyn of MF Global in Chicago.
Gold rallied as the gloomier U.S. consumer sentiment revived the bid for safe-haven assets.
U.S. gold futures for December delivery settled up $33.30 at $1,814.70 an ounce.
(Reporting by Gertrude Chavez-Dreyfuss, Emily Flitter, Joshua Schneyer and Chris Kelly in New York and Joanne Frearson, Ikuko Kurahone, Pratima Desai and Anirban Nag in London; Writing by Herbert Lash, Editing by Leslie Adler)