Markets rallied further today on hopes that Europe's leaders will agree on a plan to restore long-term confidence in the euro, saving it from collapse and averting global economic chaos.
German Chancellor Angela Merkel and French President Nicolas Sarkozy appeared to have made headway in a meeting in Paris Monday. In a joint news conference, the two said they were looking to enshrine new euro rules in a new treaty, including sanctions against countries that have higher than prescribed budget deficits.
Their proposals will be sent to the other EU leaders ahead of a summit in Brussels on Friday.
For a week now, the markets have been hopeful that, given the gravity of the situation afflicting the eurozone, Europe will come up with a common proposal for tighter integration on budget matters. Analysts say that such a plan could lead to further emergency aid from the European Central Bank, possibly through the International Monetary Fund.
"The market is pricing in a positive outcome, with fiscal convergence across the eurozone being the main focus," said Jordan Lambert, a trader at Spreadex.
In Europe, the FTSE 100 index of leading British shares was up 0.4 percent at 5,577, while Germany's DAX rose 0.7 percent to 6,121. The CAC-40 in France was 1.2 percent higher at 3,203.
The biggest gainer was Italy's FTSE MIB, which was trading up 3.1 percent, a day after the government led by Premier Mario Monti agreed to big austerity and growth-boosting measures. The proposals are being presented to a skeptical Parliament.
Monti is briefing both Parliament chambers on the package, which includes (euro) 30 billion ($27 billion) of spending cuts and tax hikes, (euro) 10 billion of which will be reinvested to boost anemic growth.
His government agreed Sunday to slap taxes on property and luxury goods, increase the age at which retirees can draw pensions, trim the cost of Italy's political class and give incentives to companies that hire women and young workers.
Significantly, the pressure on Italy eased in bond markets. The country's 10-year bond yield was down a massive 0.57 of a percentage point to 5.98 percent.
Italy is the eurozone's third-largest economy and is considered too big to be bailed out. Its borrowing rates have in recent weeks hovered around the 7 percent mark, a level that eventually forced Greece, Ireland and Portugal to seek financial help. By comparison, bond yields in Germany, Europe's largest and most stable economy, are roughly 2 percent.
"The future of the euro also depends on the choices Italy will make," Monti said in his speech to the Chamber of Deputies.
In the U.S., the Dow Jones industrial average was up 1.2 percent at 12,164, while the broader Standard & Poor's 500 index rose 1.6 percent to 1,264.
The upbeat tone in markets helped the euro advance 0.4 percent to $1.3470 and the main New York oil contract rise $1.30 a barrel to $102.26.
Earlier in Asia, Japan's benchmark Nikkei 225 index added 0.6 percent to close at 8,695.98, while Hong Kong's Hang Seng rose 0.7 percent to 19,179.69. South Korea's Kospi ended 0.4 percent higher at 1,922.90.
Mainland Chinese shares lost ground on worries over the economic outlook. The benchmark Shanghai Composite Index lost 1.2 percent to 2,333.23.