LONDON: European stock markets turned higher Friday in a technical bounce after recent heavy losses, getting a boost as Italy and Greece made progress on reforms to help stabilise their strained finances.
Dealers said the gains, up to as much as 3.0 percent in Milan, reflected investor relief that finally Italy and Greece were coming through on the measures demanded of them to ease the eurozone debt crisis.
At the same time, strong doubts remained whether Italy and Greece can ultimately pay down or reduce their debt mountains without more turmoil in the eurozone where growth appears to have come to a virtual halt.
The European Commission warned Thursday that the EU economy could fall back into recession early next year due to a "vicious circle" of government debt, vulnerable banks and weak spending.
In the absence of growth, it will prove virtually impossible to reduce the debt driving the current crisis, meaning governments will have no choice but to cut spending and hike taxes further, a toxic mix for the economic outlook.
In London mid-afternoon trade, the FTSE 100 index of leading shares was up 1.29 percent, Frankfurt's DAX 30 gained 2.81 percent and in Paris the CAC 40 advanced 2.11 percent.
Milan stocks climbed 3.01 percent and Madrid added 2.29 percent.
The euro rose to $1.3691 from $1.3599 in New York late Thursday while the dollar fell to 77.21 yen from 77.63 yen.
"Equity markets are seemingly looking a little more kindly on Europe as we head into the weekend break with news of (Italy Prime Minister Silvio) Berlusconi's accelerated departure," said IG Markets trader Peter Stanhope.
This was "combined with progress from Greece over the formation of a coalition government, helping cheer stocks on a global basis," he added.
Reflecting the easing of tensions, Italian borrowing costs fell sharply, with the benchmark 10-year government bond yielding 6.659 percent, holding below the danger level of 7.0 percent seen at the height of the government crisis this week.
Interest rates of about 7.0 percent are widely considered to be too high for Italy to finance its public deficit and carry its debt for the long term.
Berlusconi has promised to step down once a package of reforms receives final approval from parliament.
In Berlin, the head of the eurozone crisis fund called on Italy to act swiftly to reassure markets about its financial and political stability, in an interview in several European newspapers on Friday.
"Italy doesn't have much time to reassure the markets," said Klaus Regling, head of the European Financial Stability Facility, according to the Suddeutsche Zeitung newspaper.
"The country needs a functioning government as soon as possible," he said, adding that the fund was ready to help Italy immediately if it was asked.
In New York, the blue-chip Dow Jones Industrial Average jumped 1.50 percent in early trade, with the tech-heavy Nasdaq Composite up 1.04 percent, helped by the European lead and generally more positive US data this week.
In Asian trade earlier Friday, Tokyo finished 0.16 percent higher and Sydney gained 1.23 percent while Hong Kong, which dived more than five percent on Thursday, put on 0.91 percent.
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