European stocks rallied Tuesday and the euro rose against the dollar as Chinese data and upbeat US company results overshadowed fears over the stubborn eurozone debt crisis, dealers said.
Investor sentiment was boosted as slowing Chinese exports sparked fresh speculation over more monetary easing from Beijing.
In European midday trade, London's FTSE 100 index of leading stocks was up 1.17 percent to 5,678.19 points, Frankfurt's DAX 30 jumped 2.49 percent to 6,165.57 points and the Paris CAC 40 advanced 2.31 percent to 3,199.66.
Milan surged by more than three percent, led by a recovery in the banks, including UniCredit, which had slumped sharply in the past few sessions.
The euro meanwhile advanced to $1.2790 from $1.2763 in New York late Monday, when it struck a 16-month low at $1.2666.
US aluminum giant Alcoa announced overnight that full-year profit more than doubled in 2011 to $611 million and delivered an upbeat demand outlook but also posted a fourth-quarter loss of $191 million on declining revenues.
"The sentiment in the markets improved as the earnings season kicked off with Alcoa publishing its latest forecast beating results, shifting the attention from European troubles for a while," said trader Anita Paluch at Gekko Global Markets.
"Also the Chinese trade data, despite a clear slowdown in growth, raised hopes for a monetary policy easing in Beijing."
China's trade surplus shrank in 2011 as import and export growth slowed sharply, official data showed on Tuesday, after domestic tightening measures and global economic turmoil hit consumption.
The figures add to mounting evidence the economy is slowing and ratchets up pressure on Beijing to further loosen policy to prevent the world's second-largest economy from suffering a painful hard landing.
"Over in China, we're seeing a similar development with regards to economic data as happened in the US last autumn -- namely that bad data has a positive effect as it raises hopes of looser monetary policy," said IG Index analyst David Jones.
"Today's weaker trade data from the Asian giant spurred some to hope that Beijing will cut rates to boost growth, breathing new life into the dynamo economy of the east."
In Asian trade Tuesday, Shanghai's stock market soared 2.69 percent and Hong Kong closed 0.73 percent stronger. Tokyo gained 0.38 percent, Sydney added 1.14 percent and Seoul jumped 1.46 percent.
Back in Frankfurt, Commerzbank shares surged 7.72 percent to 1.27 euros after the German lender's chief financial officer Eric Strutz indicated that the group was able to meet EU capital requirements under its own steam.
"In the DAX, Commerzbank is today a clear winner after its statement it could raise the needed capital on its own with no help from the government," added trader Paluch.
Meanwhile, a Franco-German meeting on ramping up plans to save the euro got a tepid response from investors.
The ongoing sovereign debt crisis in Europe showed no sign of abating despite German Chancellor Angela Merkel and French President Nicolas Sarkozy holding a meeting on the eurozone crisis.
Sarkozy said after the talks that an agreement on stricter budgetary rules tying in all EU members except Britain should be signed by March 1.
Merkel said negotiations on a text were "progressing well" and announced Paris and Berlin could accelerate payments into a permanent fund for possible future bailouts that is due to come into force later this year.
Wall Street managed modest gains on Monday on the back of upbeat data and ahead of the Alcoa numbers. The Dow Jones Industrial Average rose 0.26 percent.