European stock markets and the euro climbed on Thursday on the back of successful bond auctions in Italy and Spain, and before key interest rate decisions in Britain and the eurozone.
In late morning deals, London's FTSE 100 index of leading stocks gained 0.33 percent to 5,689.46 points, Frankfurt's DAX 30 jumped 1.34 percent to 6,236.98 points and the Paris CAC 40 won 1.22 percent to 3,244.01 points.
Milan's FTSE Mib surged 3.24 percent to 15,367.02 points and Madrid's Ibex 35 rallied 1.62 percent to 8,564.4 points.
The European single currency advanced to $1.2748 from $1.2707 in New York late on Wednesday, when it had plunged to a 16-month low at $1.2662 -- last seen in September 2010 -- on eurozone debt crisis worries.
"A well-received Spanish bond auction put a touch of Mediterranean sparkle into the FTSE 100 this morning, enlivening up what started out as a rather dull session," said analyst Chris Beauchamp at trader IG Index on Thursday.
"Markets had been on hold before the sale, as traders waited to see whether there was anyone left willing to buy up debt issued by the Iberian state."
Spain aced its first bond test of 2012 under a new right-leaning government, locking in sharply lower borrowing rates and raising far more money than first planned.
Investors flocked to the issue and the Treasury took advantage of the cheaper rates to raise about 10 billion euros ($12.7 billion) -- twice the original target.
Italy, meanwhile, raised 12 billion euros ($15 billion) in its first bond auction of the year on Thursday, with borrowing rates for short-term funds down sharply in a sign of improving market confidence.
Rome issued 8.5 billion in 12-month bonds and 3.5 billion euros in flexible Treasury bills to mature within 136 days, the Bank of Italy said. Borrowing rates on the 12-month Italian bonds tumbled.
Across in Frankfurt, the European Central Bank, which has cut interest rates the past two months, looks set to hold borrowing costs later Thursday, until it can better assess how effective the moves have been.
And in London, the Bank of England also appears set to leave interest rates unchanged, at a record low level of 0.50 percent, amid fragile growth. The BoE call is due at 1200 GMT, followed by the ECB at 1245 GMT.
British stock market gains were meanwhile tempered by a gloomy trading update from the nation's biggest retailer Tesco.
The supermarket chain posted falling sales for the crucial Christmas trading period and warned on the outlook for profits growth. In reaction, Tesco shares tumbled 14.21 percent to 330.30 pence.
In Asia, stock markets mostly fell as earlier optimism petered out after another slowdown in Chinese inflation.
An upbeat assessment of the world's biggest economy by the US Federal Reserve was also unable to provide enough support as Wall Street provided a weak lead a day after hitting a five-month high.
Hong Kong dropped 0.30 percent, Sydney fell 0.16 percent and Tokyo dipped 0.74 percent, while Shanghai closed flat.
China released figures showing consumer prices rose 4.1 percent in December, a fifth straight month of easing and their slowest pace since September 2010.
The National Bureau of Statistics said the full-year rate came in at 5.4 percent -- well above the government's four percent target.
The figures provided authorities with enough room to further ease monetary policy, lifting hopes for better credit conditions in the country after more than a year of measures aimed at tackling soaring inflation.