The FTSE 100 index of leading British shares was up 42.09 points, or 1.0 per cent, at 4,194.78, while Germany's DAX was 69.24 points, or 1.5 per cent, higher at 4,629.74. The CAC-40 in France was 44.96 points, or 1.4 per cent, higher at 3,214.82.

Banks across Europe were doing particularly well, with Standard Chartered PLC, Deutsche Bank AG, UBS AG and Societe Generale SA rising between 3.5 per cent and 8 per cent, while heavyweight energy stocks such as BP PLC, Royal Dutch Shell and Total SA firmed following Wednesday's 8 per cent rally in the price of oil.

Europe's gains came as Japan's Nikkei 225 stock average added almost 2 per cent to 8,373.39 points, and Hong Kong's Hang Seng benchmark rose 1.4 per cent to 13,552.06.

The rise in European and Asian markets came after Wall Street reversed early losses to end up solidly in the black. The Dow Jones industrial average closed 2.9 per cent higher at 8,726.61, its first four-day winning streak since April 15-18. Meanwhile, the broader Standard & Poor's 500 index advanced 3.5 per cent, to close at 887.68.

The Dow has risen 15.6 per cent in the last four days, its biggest four-day percentage gain since 1932. The S&P 500's four-day rally was its first since May.

The rally on Wall Street came despite further poor news on the US economy. Figures showed durable goods orders in October slumped by a two-year high rate of 6.2 per cent, new home sales at a 17-year low and consumer sentiment languishing at a 28-year low.

'There is only so long that markets can ignore economic fundamentals - unless, that is, there is a growing sense of certainty that the worst the global economy has to churn out has been accounted for,' said Mr Neil Mellor, an analyst at Bank of New York Mellon.

There are some hopes that a raft of policy measures around the world may limit the scale of the global downturn next year, though the upcoming Christmas sales period is not expected to be particularly good for retailers.

Britain's home improvements firm Kingfisher PLC was down 6 per cen ont Thursday after predicting a gloomy 2009 and investors took fright at the news that general retailer Woolworths PLC has been put into administration after its creditors effectively pulled the plug.

In the US., investors are responding to President-elect Barack Obama's pledge to have an economic plan to deal with the crisis on his first day in office in mid-January and mounting expectations that the US government will bail out troubled automaker General Motors Corp.

Investors also cheered China's 1.08 percentage-point rate cut to spur private borrowing and support a multibillion-dollar stimulus package to keep the country's economy - a key engine of growth in Asia and elsewhere - from slowing too fast.

Across Asia, commodity and shipping stocks soared on hopes that China's rate cut - the fourth in three months - would underpin demand for metal, oil and other resources as well as the means to transport them.

'Overall investors are still cautious and waiting to see how things turn out, but there is definitely relief that the financial system is going to be supported by governments around the world,' said Mr D. Gorton, research analyst at Louis Capital Markets in Hong Kong.

Australian mining giant BHP Billiton Ltd. gained 5.7 per cent, and No. 2 Chinese steel maker Angang surged 7.3 per cent in Hong Kong.

Japan's Mitsui O.S.K. Lines Ltd., the world's biggest cargo shipper, jumped 7.4 per cent.

Elsewhere in Asia, mainland China Shanghai Composite index rose 1.1 per cent to 1,917.86, after gaining as much as 3.7 per cent.

Markets in South Korea, Taiwan and Australia also were higher.

In India, markets were closed after coordinated attacks by teams of gunmen across Mumbai, the country's financial capital, killed at least 101 people.

Thai shares traded 1 percent lower after authorities shut down Bangkok's second airport on Thursday after it was overrun by anti-government protesters, completely cutting off the capital from air traffic as the country's political crisis deepened.

Oil prices were down slightly on Thursday after rallying 8 per cent the previous session. The January contract was down $0.57 to $53.87 a barrel in electronic trading on the New York Mercantile Exchange.

In currencies, the dollar fell 0.3 per cent to 95.32 yen, while the euro was 0.3 per cent firmer at $1.2909. -- AP