U.S. and European stocks and the euro rose on Wednesday as bargain-minded buyers emerged after a steep sell-off on fears that Greece's referendum on its euro zone bailout could push the country into an imminent default.
Greek Prime Minister George Papandreou's surprise call late Monday for Greek voters to decide on accepting steep domestic cuts for a 130-billion-euro bailout package drew criticism within his government and from other euro zone members.
A top German official said it is an open question whether Greece would receive an 8-billion-euro tranche of IMF/EU aid due in mid-November before the referendum.
The latest twists in the Greek debt drama did not snuff out hopes for a solution, although they left investors on edge.
There are still ongoing negotiations in Europe. There is still a possibility that the previous agreement will go through, so that's positive for investors, said Stephen Wood, chief market strategist at Russell Investments in New York.
Investors are looking ahead to the Greek government's confidence vote on Friday. If Papandreou loses, a general election will be called and most likely there will be no referendum.
Papandreou will face the leaders of France and Germany, who summoned him for crisis talks in Cannes before a G20 summit of major world economies to push for quick implementation of the bailout deal.
Rejection of the package could lead to a disorderly Greek default, with the fallout affecting European banks and rippling across the global financial system.
The European situation is still a problem for equity investors, said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
The MSCI world equity index <.MIWD00000PUS> clung to a 1 percent gain after losing 6 percent in the previous two days.
The euro retreated from its early highs. It ended up 0.2 percent against the dollar at $1.3726, and finished down 0.1 percent versus the yen, at 107.18 yen.
Less-dismal data on the U.S. job market and hopes of more policy easing from the U.S. Federal Reserve and the European Central Bank also supported stocks and the euro and exerted early selling pressure on German Bunds and U.S. Treasuries.
The Fed did not announce more monetary easing at the conclusion of its two-day policy meeting on Wednesday, after it implemented its $400 billion Operation Twist in October. But analysts said its statement left the door open for more stimulus if the economy needs it.
They might be inclined towards a QE3 but they are waiting for more evidence that more action is needed, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, referring to a third round of quantitative easing from the Fed.
The Fed released its latest forecasts on the U.S. economy. They showed central bank economists expect growth to be slower than previously thought in 2012 and beyond and unemployment staying unusually high.
On Wall Street, stocks were up but off their highs after IMF and EU sources told Reuters the next tranche of aid to Greece would be on hold until after the referendum.
The Dow Jones industrial average <.DJI> closed up 178.08 points, or 1.53 percent, at 11,836.04. The Standard & Poor's 500 Index <.SPX> was up 19.62 points, or 1.61 percent, at 1,237.90. The Nasdaq Composite Index <.IXIC> was up 33.02 points, or 1.27 percent, at 2,639.98.
European stocks <.FTEU3> ended up 1 percent, recovering early losses ahead of the U.S. open.
In Tokyo, the Nikkei <.N225> closed down 2.2 percent following Tuesday's sell-off on Wall Street and in Europe.
The stabilization in stocks and the euro led investors to reduce their safe-haven holdings of U.S. and German debt. Bond prices pared early losses as stocks and the euro came off their session highs.
Bund futures fell 0.4 percent to 137.58 after touching a near one-month high on Tuesday, while the benchmark 10-year U.S. Treasury note was marginally lower in price to yield 1.99 percent.
In commodities markets, Brent crude futures in London settled down 20 cents at $109.34 a barrel, while U.S. crude oil futures ended up 51 cents at $92.70.
Spot gold rose 1 percent to $1,734.90 an ounce.
(Additional reporting by Chuck Mikolajczak, Chris Reese, Nick Olivari, Robert Gibbons, Frank Tang in New York; Editing by Dan Grebler)