The euro advanced against the dollar on Thursday after Russia resumed gas supplies to Europe and the European Central Bank surprised markets with a 0.5-percentage-point rate hike.

The advance by the single currency came on a mixed day for European bourses but a good session on Wall Street, where equities advanced for a third straight day following strong Tesla results and the pullback in the dollar.

Quincy Krosby, chief global strategist at LPL Financial, said market sentiment has clearly improved some, but there were still several major earnings reports in the coming days that will be critical in determining what's next for stocks.

"The question that I think hovers over the market is: Is the bear market over?," she said. "Is this the end?"

While ECB policymakers had signaled they would hike rates at the meeting on Thursday to tame soaring inflation, analysts were divided about whether the traditionally cautious institution would proceed with a quarter-point or half-point move.

City Index analyst Fawad Razaqzada said the euro's recent slump -- it briefly fell under dollar parity last week -- meant that the eurozone is now importing more inflation, which favored a bigger hike.

The jump in eurozone inflation to an annual rate of 8.6 percent in June also increased pressure on the ECB, as did the fact other central banks have moved more aggressively than markets had expected.

"The ECB had to surprise, otherwise the euro would have plunged -- and they couldn't risk that," Razaqzada said.

The ECB also introduced a new tool to counter spikes in the borrowing costs of some eurozone countries.

With the resignation of Prime Minister Mario Draghi increasing the political risk in Italy and sending Italian government bond yields climbing, the ECB may need to use its new tool.

The difference between Italian government bond yields and Germany's, the eurozone benchmark, widened on Thursday.

The political crisis sent Milan's FTSE MIB index down three percent, though it later pared those losses to close with a 0.7 percent decline.

Paris stocks managed a 0.3 percent gain, while Frankfurt's DAX slid 0.3 percent despite the resumption of Russian gas flows.

Russia on Thursday restored critical gas supplies to Europe through Germany via the Nord Stream pipeline after 10 days of maintenance.

European officials had worried that Moscow would find a pretext to keep the gas shut off.

Uncertainty still lingers over whether the Kremlin might trigger an energy crisis on the continent this winter.

ECB President Christine Lagarde acknowledged that the fallout from Russia's war in Ukraine and soaring inflation have darkened the eurozone's economic outlook.

On commodities markets, oil prices extended their losses -- with WTI below $100 -- after data showed US stockpiles rose more than expected last week as pricey gasoline depressed demand for the fuel.

The figures come despite being at the height of the high-demand summer driving season.

The European Central Bank is expected to announce its first rate hike in over a decade
The European Central Bank is expected to announce its first rate hike in over a decade DPA via AFP / Boris Roessler

New York - Dow: UP 0.5 percent at 32,036.90 (close)

New York - S&P 500: UP 1.0 percent at 3,999.10 (close)

New York - Nasdaq: UP 1.4 percent at 12,059.61 (close)

London - FTSE 100: UP 0.1 percent at 7,270.51 (close)

Frankfurt - DAX: DOWN 0.3 percent at 13,246.64 (close)

Paris - CAC 40: UP 0.3 percent at 6,201.11 (close)

Milan - FTSE MIB: DOWN 0.7 percent at 21,196.59 (close)

EURO STOXX 50: UP 0.3 percent at 3,596.51 (close)

Tokyo - Nikkei 225: UP 0.4 percent at 27,803.00 (close)

Hong Kong - Hang Seng Index: DOWN 1.5 percent at 20,574.63 (close)

Shanghai - Composite: DOWN 1.0 percent at 3,272.00 (close)

Euro/dollar: UP at $1.0232 from $1.0180 on Wednesday

Pound/dollar: DOWN at $1.2002 from $1.1973

Euro/pound: UP at 85.22 pence from 85.00 pence

Dollar/yen: DOWN at 137.34 yen from 138.21 yen

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Brent North Sea crude: DOWN 2.9 percent at $103.87 per barrel