European stocks firmed on Friday as investors tracked gains elsewhere and digested strong US data, but sentiment was clouded by prospects of rating downgrades for eurozone countries.
Clouds of recession hang in the background, with the latest warning from the French statistics office that France is heading for mild recession at the end of the year.
Meanwhile France pointed at what it said was the worrying state of the British economy.
Market analysts are still pondering the economic and political implications of a decision by Britain a week ago to stand aside from a new European Union architecture to tighten budget discipline.
But Poland, winding up its term as EU president, said that Britain would send experts to eurozone talks at the end of the month on new regulations.
Asian shares also followed Wall Street higher on Friday as strong US data on jobs and manufacturing and a successful Spanish bond auction the previous day tempered concerns about the eurozone debt crisis.
"A confident, but tentative, open for European markets as investors continued a reignited Christmas rally following positive data from the US yesterday, defying the notion of a European contagion diluting global growth as well as tracking Asian gains overnight," said Spreadex trader Shavaz Dhalla.
London's FTSE 100 benchmark index added 0.45 percent to 5,425.66 points and Frankfurt's DAX 30 gained 0.17 percent to 5,740.38 points.
In Paris, the CAC 40 index added just 0.06 percent to 3,000.44, after the official forecast that the French economy will fall into a brief recession in the final quarter of this year and the first quarter of 2012.
The European single currency advanced to $1.3032, compared with $1.3017 late in New York on Thursday.
Wall Street posted encouraging gains on Thursday, aided by positive data on the US jobs market, industrial activity and trade, but eurozone clouds continued to hover over the markets.
In particular, traders remained cautious as they awaited Standard & Poor's potential credit downgrade of 15 eurozone member countries -- including France and Germany -- while the IMF warned of a miserable outlook for the global economy.
"The (S&P) credit rating agency has a habit of downgrading Europeans late on a Friday night, and S&P put 15 out of 17 eurozone members on negative watch earlier this month," said Forex.com analyst Kathleen Brooks.
"If it does make the move, it would not be totally out of the blue," she added.
Market gains were also capped after ratings firm Fitch downgraded six major global banks overnight, citing increased challenges in their business and the prospect of financial turmoil ahead.
Fitch lowered the long-term ratings on Bank of America and Goldman Sachs in the United States, British bank Barclays, French bank BNP Paribas, German bank Deutsche Bank and Swiss bank Credit Suisse.
The downgrades "reflected challenges faced by the sector as a whole, rather than negative developments in idiosyncratic fundamental creditworthiness," Fitch said in a statement.
By contrast, Fitch affirmed the ratings on Morgan Stanley, Societe Generale and UBS.
The euro meanwhile held above the 11-month low of $1.2946 that was struck earlier this week on intensifying concerns over the eurozone crisis.
"The optimism in the financial markets also reflects the strong auction of Spanish debt yesterday," added economist Derek Halpenny at The Bank of Tokyo Mitsubishi UFJ in London.
The result allowed the eurozone's fourth-biggest economy to distance itself from Italy, which was forced to pay record high borrowing rates in a bond sale just a day earlier.
However, International Monetary Fund managing director Christine Lagarde warned overnight that Europe's crisis was escalating and threatens every economy in the world.
"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies, that will be immune to the crisis that we see not only unfolding but escalating," she said on Thursday.
With Europe's leaders still struggling after months to come up with a comprehensive fix to end the crisis, Lagarde said the resolution would involve efforts from all countries and regions.
Late on Thursday, the official INSEE statistics agency warned that France will fall into a brief recession and the government's 2012 growth target of 1.0 percent will be difficult to achieve.
INSEE said it expects France to enter a mild recession in the final quarter of this year and the first quarter of 2012.