Europe's stock markets and the euro rallied on Wednesday, boosted by a newspaper report that EU leaders were close to massively increasing their bailout fund for troubled eurozone economies.
Robust earnings from chip giant Intel also provided some support but a downgrade of Spain's credit rating tempered the mood before a summit of EU leaders this weekend set to centre on the debt crisis.
London's FTSE 100 index of top shares leapt 1.02 percent to 5,465.47 points in late morning trade, despite the Bank of England saying it expected no pick-up for Britain's stalled economy in the current fourth quarter.
Frankfurt's DAX 30 jumped 1.40 percent to 5,959.27 points and in Paris the CAC 40 won 0.89 percent to 3,168.66. Madrid gained 0.67 percent and Milan rallied 1.54 percent.
In foreign exchange deals, the European single currency soared as high as $1.3868, which compared with $1.3752 late in New York on Tuesday.
Markets took their lead from New York, where dealers welcomed a report in a British newspaper that France and Germany had agreed to more than quadruple the European Financial Stability Facility (EFSF) bailout fund.
Citing unnamed European Union diplomats, The Guardian said the eurozone's two biggest economies would boost the rescue fund to two trillion euros ($2.7 trillion) from its current 440 billion euros.
If correct, the news would be a massive boost to markets as dealers have for months been concerned that a lack of strong leadership from Europe during its debt crisis could spark another global economic downturn.
But doubts emerged amid conflicting reports that European officials were still debating the size of the EFSF.
"A Guardian newspaper article has sparked the renewed optimism, but contains no new details which have not already been trialled reporting simply that Germany and France have reached an agreement to increase the size of the EFSF," said economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ in London.
Europe is looking for ways of boosting the firepower of the EFSF because many experts believe the 440-billion-euro fund is too small to prevent the eurozone debt crisis from spreading.
Sentiment was also lifted after German Finance Minister Wolfgang Schaeuble suggested the firepower of the EU's bailout fund could be increased to 1.0 trillion euros, the Financial Times Deutschland reported.
Asian stock markets meanwhile mostly closed higher on Wednesday, with Hong Kong surging 1.29 percent, Tokyo up 0.35 percent and Sydney adding 0.64 percent.
"The Guardian headline ... generated a risk rally, but soon markets realised that this was not new news, was denied, and the gains were eased," noted Emma Lawson of National Australia Bank.
Investors are cautiously awaiting a summit of EU leaders in Brussels on Sunday that many hope will provide a blueprint for a solution to the debt crisis, which has ravaged the European bloc.
However, tempering the optimism was news that Moody's had cut Spain's debt rating, warning that no "credible" resolution to the country's economic crisis had yet emerged.
Wall Street provided a lead after Intel said it saw record sales for the third quarter, shrugging off worries about a softening PC market.
However, despite a record-high quarterly profit, Apple's earnings were still below forecasts.
The Dow surged 1.58 percent, the tech-heavy Nasdaq rose 1.63 percent and the S&P 500 jumped 2.04 percent Tuesday.