European stocks rebounded slightly and the euro staged a modest recovery against the dollar on Thursday as business confidence in Germany showed a surprise bounce.
But markets remained on edge as the leaders of France, Germany and Italy began emergency talks in the shadow of a failed German bond auction which took the debt crisis to the core of the eurozone.
France's President Nicolas Sarkozy wants German Chancellor Angela Merkel to drop her refusal to allow the European Central Bank to become a lender of last resort for weaker eurozone countries struggling to raise funds on sceptical markets.
London's FTSE 100 stocks index rose 0.17 percent to 5,148.75 points in midday deals, Frankfurt's DAX 30 climbed 1.28 percent to 5,527.38 points and in Paris the CAC 40 gained 1.36 percent to 2,860.88.
European stocks slumped on Wednesday after a sale of German 10-year bonds flopped as investors turned their backs on what had been considered the gold standard of eurozone borrowers.
On Thursday, the euro climbed to $1.3386 from Wednesday, when the single currency hit a six-week low point of $1.3327.
"Contagion is slowly dragging some of the most secure countries into the debt crisis," said Jonathan Bristow, a broker at Valbury Capital.
"If the eurozone leaders don't turn it around soon this global crisis will take hold on the very countries needed to get us out of it."
Signs that the debt crisis was striking at the core of the eurozone eased slightly on Thursday as the Ifo economic institute's closely watched business sentiment index rose to 106.6 in November.
That compared with 106.4 in October, the first increase in four months and contrary to analysts' expectations.
But in a fresh sign that all was not well among the eurozone's peripheral nations, Fitch cut its rating on bailed-out Portugal to junk-bond status at 'BB+', blaming its high level of debt and weak economic outlook.
Shares in troubled Spanish lender Banco de Valencia meanwhile plummeted more than 20 percent on Thursday when trade resumed four days after the bank was rescued.
Asian shares meanwhile closed mixed and US markets were shut on Thursday for Thanksgiving, a day after slumping.
Global equities were rocked on Wednesday, with London closing down for an eighth day running -- it worst performance since 2003 -- after a German government bond auction drew some of the weakest demand since the introduction of the euro.
Berlin managed to draw bids of only 3.9 billion euros for its six-billion-euro 10-year bond auction, indicating that investors are now sceptical about even the safest assets in the eurozone.
The failure came just a few days after Moody's warned that France's weak growth and exposure to European debt could see it lose its cherished AAA debt rating, which would send its borrowing costs soaring.