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Koji Sasahara, Associated Press
Passers-by are reflected on an electronic stock board displaying the U.S. dollar's quotation, top, and that of the euro, below, against the Japanese yen at a securities firm in Tokyo, Tuesday, Jan. 17, 2012.

LONDON — Markets brushed aside fears that Greece may be heading for a devastating debt default and rallied Tuesday after Chinese growth figures eased concerns of an abrupt slowdown in the world's second-largest economy.

With Europe sliding back toward recession and the U.S. recovery still unconvincing, China's performance is important to shore up the global economy and market sentiment, especially when investors are fretting about a potential Greek default that could further roil financial markets.

Government figures showed that the slowdown in Chinese growth in the final quarter of 2011 was not as big as had been feared and would still see Chinese monetary authorities loosen policy. Though the drop to 8.9 percent represented the lowest rate in two and a half years, the markets had been expecting a bigger decline to 8.7 percent.

"Chinese activity data for late 2011 was something of a 'goldilocks' result for investors," said Nick Bennenbroek, an analyst at Wells Fargo Bank. "Growth figures surprised to the upside, but were nonetheless consistent with an overall slowing trend, keeping the prospects for further Chinese easing intact."

Following Asia's strong performance, European and U.S. markets have traded strongly.

Germany's DAX was up 1.5 percent at 6,316 while the CAC-40 in France rose 1.1 percent to 3,259. The FTSE 100 index of leading British shares was 0.6 percent higher at 5,691.

In the U.S., the Dow Jones industrial average was up 1 percent at 12,537 while the broader Standard & Poor's 500 index rose an equivalent rate to 1,301.

The rebound in sentiment was also evident in other markets, pushing the euro up 0.4 percent to $1.2730 and oil prices back above $100 a barrel. Both assets often get supported when investors feel confident enough to take on riskier assets.

The euro has foundered in recent weeks on rising concerns of a recession in the 17-nation eurozone, a mass downgrade of euro countries by the Standard & Poor's ratings agency and renewed speculation that Greece will default on its debts.

Despite the bad news, there have been signs of improvement in European bond markets. heavily indebted countries like Italy and Spain have seen their borrowing rates fall to more sustainable levels when auctioning off debt.

Investors will be cautious about the improvements in European debt markets, however. Europe's two-year debt crisis has seen these moments of calm before markets become volatile again, often due to worries related to Greece.

Greece is likely to remain the epicenter of the European debt crisis over the coming weeks as it struggles to agree a deal with its private creditors to get them to reduce the value of their holdings of Greek debt.

Last October, Greece's partners in the eurozone sanctioned a deal whereby Greece's creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country's debt burden.

The deal with private investors, known as the Private Sector Involvement, or PSI, aims to reduce Greece's debt by €100 billion ($127.9 billion) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a €130 billion international bailout, the second one for Greece.

Talks on the PSI are expected to resume on Wednesday after being suspended last Friday.

Without a deal with its private creditors, Greece has been told it won't get the next installment of money due from its first bailout. Without that money, Greece would be unable to pay a big bond redemption in March, potentially triggering a chain of events that could derail the global economic recovery and cause financial mayhem in Europe.

"It seems reasonable to start planning for the possibility of a Greek default in March and possibly even an exit from the single currency," said Simon Derrick, senior analyst at The Bank of New York Mellon.

Earlier in Asia, sentiment had been supported by the Chinese growth figures.

In China, the benchmark Shanghai Composite Index jumped 4.2 percent, the most in over two years, closing at 2,298.38. The Shenzhen Composite Index of China's second, smaller exchange, surged 5.1 percent to 860.25.

Hong Kong's Hang Seng soared 3.2 percent at 19,627.75 while Japan's Nikkei 225 index rose 1.1 percent to close at 8,466.40.

Pamela Sampson in Bangkok contributed to this report.