Firmer U.S. stocks pulled world shares higher on Thursday as strong U.S. jobs data took some of the focus away from renewed fears about the health of the euro zone banking system.
The dollar and euro soared more than 5 percent versus the Swiss franc after the Swiss National Bank said it could ease monetary policy further. Markets focused on the possibility of a temporary peg between the franc and the euro to rein in a soaring currency.
U.S. initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 395,000, the lowest level since early April and below economists' forecasts of 400,000.
"We'll see what happens next week, but the outlook for the August U.S. employment report is still for a result as good as it was in July, maybe better," said Pierre Ellis, a senior economist at Decision Economics in New York.
The U.S. economy created 117,000 jobs in July.
The anemic pace of U.S. growth in the first half of the year has fueled worries of another recession and the improvement in the labor market could help allay those fears. Even so, the optimism generated by the claims report was dampened somewhat by a surprise widening in the trade deficit in June.
U.S. stocks rose more than 2.0 percent in early trade, helped by a rebound in bank shares the day after speculation of trouble at French banks took markets sharply lower.
European shares also cut losses in choppy trade after French President Nicolas Sarkozy's office said he would meet with German Chancellor Angela Merkel to discuss euro zone issues. The pan-European FTSEurofirst 300 rose 1.4 percent.
The MSCI world equity index gained 1.3 percent after earlier losses.
The Dow Jones industrial average rose 285.66 points, or 2.66 percent, at 11,005.60. The Standard & Poor's 500 Index was up 33.24 points, or 2.97 percent, at 1,154.00. The Nasdaq Composite Index was up 78.35 points, or 3.29 percent, at 2,459.40.
The euro was last up 5.7 percent at 1.0889 francs, compared with a record low of 1.0075 set as recently as Tuesday.
Nonetheless, markets were on edge after banking sources told Reuters that one bank in Asia had cut credit lines to major French lenders while others in the region were reviewing trades and counterparty risks due to concerns about the exposure of French banks to peripheral euro zone bonds.
Societe Generale, at the center of Wednesday's storm that took its shares down more than 20 percent at one point, rose about 5 percent, while BNP Paribas was flat. Trading in some Italian banks was suspended for excessive volatility.
"We're being driven by the news flow out of Europe, and until we get clarity, it's hard to get much traction. At the same time, we're also very oversold," said Art Hogan, managing director of Lazard Capital Markets in Boston.
"When we hear of steps being taken to address the situation the market catches a bit of a bid, but then other news will come out and we sell off. Volatility is really the word of the week."
Concerns have been intensifying about the health of French and Italian banks, which are heavily exposed to troubled euro zone sovereign debt.
On Wednesday, a stream of rumors about a sovereign rating downgrade of France and concerns about the health of French banks caused the biggest widening in the benchmark index of European credit default swaps since 2008.
All three major rating agencies later reaffirmed France's AAA rating and said its outlook was stable. But markets remain concerned that French banks are among the most exposed to a worsening of Europe's government debt crisis.