LONDON: European stock markets closed sharply higher on Wednesday as strong quarterly company results restored faith in the prospects for growth and offset continuing concerns over US and eurozone debt.
Dealers said the gains made up ground lost Monday when Standard & Poor's, in a first, downgraded its US debt outlook to 'negative' from 'stable' and warned of an outright ratings cut if Washington cannot stabilise the public finances.
They said the S&P move shocked markets which may have been too complacent about the US debt problem and upped the ante for bickering Democrat and Republican leaders to reach a lasting accord to tame the mounting deficit.
Strong results from major companies such as Intel, IBM and Goldman Sachs plus encouraging data on the US housing market gave sentiment the boost they were looking but some suggested the gains may only be technical, not lasting.
In London, the FTSE 100 index of leading shares closed up 2.13 percent at 6,022.26 points. In Paris, the CAC 40 jumped 2.46 percent to 4,004.62 points and in Frankfurt the DAX gained 2.98 percent to 7,249.19 points.
"What a difference a day makes," said Simon Denham, head of Capital Spreads trading group in London.
On Monday, everyone was looking for safety but "after strong earnings from IBM, Intel and Goldman Sachs the major indices are all trading back above the levels before the S&P changed its outlook on the US economy to negative."
The miners got an additional boost from record gold prices above $1,500 an ounce as investors jumped on the precious metal bandwagon and used it to hedge their bets elsewhere.
In Paris, Philippe Cohen de Barclays Bourse said the strong company results saved the market and cautioned: "I have to say that on the macro-economic front investors have no real reasons to be happy."
With the debt issue now firmly on the agenda on both sides of the Atlantic, dealers also warned that Wednesday's gains could simply be a technical bounce after the heavy losses sustained Monday on the S&P news lead.
"We are in a market which is rising in a vacuum driven mainly by the desire to wipe out Monday's excessive losses," said Waldemar Brun-Theremin at Turgot Asset Management.
In New York, stocks jumped at the opening as investors welcomed strong company results and news of another pick-up in existing home sales in March, suggesting the key housing market is finally holding its own.
The blue-chip Dow Jones Industrial Average was up 1.55 percent at around 1600 GMT with the tech-heavy Nasdaq Composite gaining 1.99 percent.
Patrick O'Hare at Briefing.com said investors were looking past potential risks from macroeconomic conditions, including political unrest in the Middle East and North Africa (MENA).
"The unspoken but clear message in the body of earnings reports is that the macro noise of unrest in the MENA region, Japan's earthquake, spikes in commodity prices, and sovereign debt concerns have not undercut business activity in the manner many have been fearing," O'Hare said.
"We expect investors to continue to focus on earnings ... over the next few days," Frederic Dickson at DA Davidson & Co said.
In Asian trade earlier Wednesday, Tokyo rose 1.76 percent, Hong Kong gained 1.60 percent, Shanghai edged up 0.27 percent and Sydney put on 1.37 percent.