World stock markets rallied Thursday on hopes that the global economy will recover faster than expected and that Europe's banks are healthier than previously feared.
The International Monetary Fund raised its 2010 world growth forecast to 4.6 percent from 4.2 percent previously and boosted estimates for the United States and China.
In Europe, the European Central Bank left interest rates unchanged at a record low and said economic growth was continuing, although at an uneven pace because of the debt crisis.
Crucially, finance stocks rallied after the committee subjecting some of Europe's biggest banks to stress tests said it has widened the factors aimed at determining their financial health. That reinforced confidence in the results, which will be published later this month.
Britain's FTSE 100 was up 1.9 percent at 5,111.20 and Germany's DAX was 0.8 percent higher at 6,043.33. France's CAC-40 rose 1.7 percent to 3,534.15.
Banks were among the biggest gainers, with Barclays up 4.4 percent, Deutsche Bank gaining 3.8 percent and Societe Generale rising 2.9 percent. Mining and oil shares also rose strongly, helped by higher commodity prices.
Asian stocks closed sharply higher and Wall Street gained on the open after surging the previous day _ the Dow Jones industrial average rose 0.8 percent to 10,096.00. The Standard & Poor's 500 was up 0.8 percent at 1,068.18.
In its report, the IMF warned that the European debt crisis could pose a risk to global growth but said a return to recession was unlikely. In fact, strong growth in developing economies and improvements in the U.S. would outpace a stagnation in Europe, which will be hit by painful austerity cuts.
The forecast, along with a strong profit forecast by State Street bank in the U.S. helped boost confidence in the upcoming corporate earnings season.
U.S. economic data also proved somewhat more encouraging. Initial jobless claims fell to their lowest levels since early May last week, a breath of relief for markets after a string of disappointing U.S. economic data in recent weeks.
In Europe, investors were also heartened by a report on the criteria to be used in the bank stress tests. The results, which are to be published July 23, will cover 91 banks, which represent 65 percent of the European banking sector. Some traders speculate that the banks will prove more resilient than many currently fear.
The European Central Bank, meanwhile, broadly met expectations when it left its monetary policies unchanged and said it welcomed the publication of the stress tests.
Although President Jean-Claude Trichet at a press conference dodged most questions about the test results, he said the eurozone economy is expected to keep growing at "a moderate and still uneven pace."
Earlier, the Bank of England had also announced it had left its interest rates unchanged, as widely expected.
Further boosting European stocks on Thursday was official data showing a strong rise in industrial production, imports and exports in Germany, Europe's biggest economy. The figures for May suggest industry is eagerly importing materials necessary for production and that exporters continue to benefit from a weak euro.
In Asia, Japan's benchmark Nikkei 225 stock index jumped 2.8 percent to 9,535.74 and South Korea's Kospi added 1.4 percent to 1,698.64. Australia's S&P/ASX 200 climbed 2.4 percent to 4,356.70.
Elsewhere, Hong Kong's Hang Seng index rose 1 percent to 20,050.50. Benchmarks in Singapore, Indonesia, India and Taiwan were also higher while China's Shanghai Composite Index dropped slightly.
In currencies, the dollar rose to 88.44 yen from 87.76 yen in New York late Wednesday. The euro climbed to $1.2687 from $1.2633.
Benchmark crude for August delivery was up $1.52 cents to $75.59 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.09 to settle at $74.07 on Wednesday.
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Associated Press researcher Bonnie Cao in Beijing contributed to this report.
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