European and US stocks rebounded Thursday following sharp falls the previous day thanks to encouraging economic data, while unusual lurches in a handful of stocks continued.

"Stocks have largely recouped earlier losses as the fear that previously ran through the markets has dissipated," said market analyst David Madden at CMC Markets UK.

Both Frankfurt and Paris ended the day in positive territory, while London finished in the red as the pound rose against the dollar.

Wall Street stocks also won solid gains, recovering some of the losses from the prior day's rout.

"This morning the mood was fearful due to concerns that some hedge funds were frantically closing out positions in a bid to free up cash to meet margin calls requirements on short positions that have gone horribly wrong for them," he added.

Markets had been unnerved by huge swings in certain stocks amid a David versus Goliath battle by investors over struggling video game retailer GameStop.

The US group saw its stock surge about 1,000 percent in two weeks after a group of amateur investors active on online forum Reddit banded together to fight the Wall Street funds that had previously bet on its price going lower.

But GameStop shares finished about 45 percent lower in New York, while several other firms which had also seen jumps in recent days also tumbled.

Craig Erlam at Oanda said the decrease in new claims for US unemployment benefits to 847,000 last week lifted sentiment.

"The drop in jobless claims was better than forecasts and may be driving a little optimism that the first quarter won't be as bad as feared," he said.

Meanwhile, data showed that the US economy contracted by 3.5 percent overall last year, its worst performance since 1946.

"US growth data proves the need for another bout of stimulus," said Josh Mahony at IG.

US stock prices have surged in recent months to hit records as monetary and fiscal stimulus have kept markets awash in cash.

Quarter-on-quarter growth in the United States slowed to a 4.0 percent annual rate in the final three months of the year, following a record 33.4 percent annualized rebound in the third quarter.

"US growth in the fourth quarter provided a timely reminder to lawmakers of the importance of providing ongoing support, with the recovery losing traction," he added.

A plethora of large companies, including Apple, McDonald's, Comcast and Tesla, reported results. Most topped expectations, but shares of these companies were mixed.

Fed chief Jerome Powell warned that the 'path ahead remains highly uncertain' for the US economy
Fed chief Jerome Powell warned that the 'path ahead remains highly uncertain' for the US economy POOL / Jim LO SCALZO

New York - Dow: UP 1.0 percent at 30,603.36 (close)

New York - S&P 500: UP 1.0 percent at 3,787.38 (close)

New York - Nasdaq: UP 0.5 percent at 13,337.16 (close)

London - FTSE 100: DOWN 0.6 percent at 6,526.15 (close)

Frankfurt - DAX 30: UP 0.3 percent at 13,665.93 (close)

Paris - CAC 40: UP 0.9 percent at 5,510.52 (close)

Tokyo - Nikkei 225: DOWN 1.5 percent at 28,197.42 (close)

EURO STOXX 50: UP 0.6 percent at 3,557.04 (close)

Hong Kong - Hang Seng: DOWN 2.6 percent at 28,550.77 (close)

Shanghai - Composite: DOWN 1.9 percent at 3,505.18 (close)

Euro/dollar: UP at $1.2119 from $1.2111 at 2200 GMT

Dollar/yen: UP at 104.26 yen from 104.11 yen

Pound/dollar: UP at $1.3725 from $1.3687

Euro/pound: DOWN at 88.30 pence from 88.48 pence

West Texas Intermediate: DOWN 1.0 percent at $52.34 per barrel

Brent North Sea crude: DOWN 0.5 percent at $55.53 per barrel