Richard Drew, File, Associated Press
FILE - In this Oct. 12, 2011 file photo, Stephen Holden, center, works on the floor of the New York Stock Exchange with fellow traders. Skepticism over Europe's ability to deliver a comprehensive solution to its debt troubles weighed on market sentiment Tuesday, Oct. 18, 2011, as did a warning from Moody's that it could soon review France's cherished triple-A credit rating for possible downgrade.
LONDON — Renewed hopes that Europe is close to agreeing a package of measures to deal with its debt crisis helped shore up market sentiment on Wednesday, sending stocks and the euro sharply higher.
A report in The Guardian newspaper in London suggested France and Germany, Europe's two biggest economies, were putting the finishing touches on a massive expansion of the region's bailout fund, possibly to €3 trillion ($4.1 trillion) from the current €440 billion. That helped boost stocks in the U.S. late Tuesday.
The buying momentum carried through into Asia and Europe on Wednesday, though investors remain cautious in the run-up to Sunday's meeting of eurozone leaders in Brussels.
"Such suggestions were quickly met with rebuttals, however, it's been difficult to establish the veracity of either call, so for the time being at least, traders do seem to be taking the glass-half-full approach," said Ben Critchley, a sales trader at IG Index.
In Europe, Germany's DAX was up 1.4 percent at 5,961 while the CAC-40 in France rose 1.1 percent at 3,174. The FTSE 100 index of leading British shares was 1.1 percent higher at 5,471.
Wall Street was poised for further modest gains at the open following Tuesday's late rally — Dow futures were up 0.2 percent at 11,544 while the broader Standard & Poor's 500 futures rose 0.1 percent at 1,224.
Over the past couple of weeks, stocks recovered a chunk of their losses for the year as investors priced in the likelihood of a big European response to the debt crisis that has seen three countries bailed out and pushed Greece to the bring of default.
The expectation was that the 17 countries that use the euro were preparing a three-pronged solution to the debt crisis. That would include measures to boost the firepower of the bailout fund, a recapitalization of a large part of the banking sector and a plan to get the banks to take a bigger hit on their Greek debt holdings.
However, hopes for such a plan have diminished in the early part of the week, after German officials, including the finance minister, cautioned investors against believing that Sunday's summit would mark a definitive turning point in the crisis.
"The market risk remains disappointment with whatever is decided at the weekend summit," said Neil MacKinnon, global macro strategist at VTB Capital.
Investors will be closely monitoring all commentary from key players in the summit, especially if anything emerges later from a telephone call between French president Nicolas Sarkozy and German Chancellor Angela Merkel. A French government spokeswoman said Sarkozy emphasized to cabinet members earlier Wednesday that "Europe has a rendezvous with its history."
While stocks have advanced, the euro has perked up and appears headed back towards the $1.40 mark for the first time in six weeks — when investors are willing to take on more risk the euro usually rises.
By late morning, it was 0.9 percent higher at $1.3862.
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Oil prices have also recovered ground on optimism of a comprehensive solution in Europe. The benchmark rate for November delivery was up another 10 cents at $88.44 a barrel in electronic trading on the New York Mercantile Exchange.
Earlier in Asia, Japan's Nikkei 225 index rose 0.4 percent to 8,772.54 and Hong Kong's Hang Seng added 1.3 percent to 18,309.22. South Korea's Kospi gained 0.9 percent to 1,855.92.
However, mainland China's Shanghai Composite Index fell 0.3 percent to 2,377.51. That comes on top of a 2.3 percent loss Tuesday, when data showed China's economic growth eased last quarter to 9.1 percent. The smaller Shenzhen Composite Index lost 0.6 percent to 1,004.20.