European stocks and the euro rose on Thursday, recovering much of their losses a day earlier when banks borrowed nearly half a trillion euros in three-year funds from the region's central bank, with concerns about the health of Europe's financial system keeping gains in check.
The European Central Bank lending has eased fears about an immediate credit crunch, but is not seen as resolving the huge indebtedness of some euro zone countries.
The euro was higher at around $1.3110, above an 11-month low of $1.2860, with traders seeing major support around $1.3000, the December 14 low. The euro briefly touched a one-week high near $1.32 on Wednesday.
The ECB's funding operation is not a fundamental fix to the euro zone's debt problems and is only a way to buying time, so flight-to-safety bids remain firmly in place, said Shinsuke Kanabu, general manager at Central Tanshi, a Japanese money brokerage.
European shares started higher with the FTSEurofirst 300 index <.FTEU3> gaining around 1.0 percent in early trade while global stocks, as measured by MSCI world equity index <.MIWD00000PUS> were edged up 0.2 percent though still on track for a fall of about 12 percent in 2011.
Investors are winding down for year-end and trading volumes are set to dwindle but the threat of mass credit ratings downgrades for the euro zone countries is still hanging over the market.
Euro zone debt crisis graphics: http://r.reuters.com/hyb65p
In debt markets German government bond prices were slipping with much attention focused on Italy where a vote of confidence is expected on Prime Minister Mario Monti's government in the upper house to seal approval of a 33-billion euro ($43 billion) austerity package.
The package passed in the lower house last week and is expected to succeed just as easily in the upper house. Were Monti to lose the vote, his government would collapse.
Commodities markets were muted in thinning pre-holiday trade, with London Metal Exchange copper up slightly at $7,478.25 a metric ton and Brent crude oil little changed at around $107.70 a barrel.
(Additional reporting by Chikako Mogi)