Stocks extended gains Wednesday as investors welcomed a broad new crisis plan from the European Commission president to help banks in Europe better withstand the effects of ongoing debt market turmoil.
Jose Manuel Barroso's call for a stricter accounting of European banks' exposure to sovereign debt and a call for banks to hold more capital propelled markets higher. Barroso also called for a permanent bailout fund, the European Stability Mechanism, to come into force already in mid-2012, one year ahead of schedule.
Investors also shrugged off Slovakia's rejection of Europe's bailout fund and focused on hopes that a workaround solution would be found before a summit of EU leaders next week.
Despite the rejection, markets are confident that the measures will pass by the end of the week after the country's opposition reached a deal to approve changes to the bailout fund.
"Market participants do expect those measures will be passed soon, while comments from various European lawmakers have also spurred expectations of some recapitalization of Europe's banks, which would act as a partial buffer against further market stress," said Nick Bennenbroek an analyst at Wells Fargo Bank.
"For the near-term, markets appear willing to give European politicians the benefit of the doubt," he added.
In Europe, the CAC-40 in France was up 2 percent to 3,216, while Germany's DAX rose the same rate to 5,984.
The FTSE 100 index of leading British shares was 0.8 percent higher at 5,439.
The euro has also advanced strongly — it was trading 1 percent higher at $1.3785.
On Wall Street, the Dow Jones industrial average was up 1 percent at 11,534 while the broader Standard & Poor's 500 index rose 1.4 percent to 1,213.
Market sentiment has seesawed in recent weeks between hope and despair that European leaders will present a solution to the debt crisis, which has threatened to bankrupt Greece and several major banks that hold its debt.
Greece's debt inspectors have indicated that Athens would get the next installment of its bailout loans, even though it has fallen short on some of its promised reforms.
A Greek default would cause the value of its bonds held by European banks to plunge, hurting their balance sheets. U.S. banks would also be affected if Greece goes through a messy default, since they own Greek bonds and also have close ties to European banks.
Greece has been dependent since May last year on a euro110 billion ($150 billion) bailout package from other eurozone countries and the International Monetary Fund.
Earlier in Asia, Japan's Nikkei 225 index dropped 0.4 percent to close at 8,738.90. But Hong Kong's Hang Seng rose 1 percent to 18,329.46 and South Korea's Kospi added 0.8 percent to 1,809.50. Benchmarks in Singapore, India, Indonesia and mainland China also swung into positive territory.
Oil prices remained shed earlier gains with the benchmark New York rate down 8 cents at $85.73 a barrel.
Associated Press Business Writer Pamela Sampson contributed to this report from Bangkok.
Copyright 2011 The Associated Press.