Stocks got a lift Friday by news that the U.S. economy generated more jobs than anticipated over the past three months, reinforcing hopes that the world's largest economy will not be sliding back into recession.
The Labor Department reported that the U.S. added 103,000 jobs in September. That was above expectations for a 60,000 increase. It also revised up the previous two months' figures to show around 90,000 more jobs were created than previously thought.
However, the number of new jobs was not enough to push the 9.1 percent unemployment rate lower. The U.S. economy must create twice as many jobs per month just to keep up with population growth.
"In the big picture, today's reading soothes recessionary fears," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co.
Given that one of the fears stalking markets over the past couple of months, alongside Europe's debt crisis, was the stalling U.S. economy, investors breathed a muted sigh of relief, limiting the advance.
Though a U.S. recession seems less likely than a month or two back, investors are fully aware that the pace of jobs creation in the U.S. has eased to an average of around 70,000 per month since April from about 160,000 in the seven months beforehand.
In Europe, Germany's DAX was 0.5 percent higher at 5,669 while the CAC-40 in France rose 0.6 percent to 3,092. The FTSE 100 index was up 0.4 percent at 5,312, though Lloyds Banking Group PLC and Royal Bank of Scotland PLC were underperforming in the wake of a downgrade of their credit ratings from Moody's.
In the U.S., the Dow Jones industrial average was up 0.5 percent at 11,180 while the broader Standard & Poor's 500 index rose 0.1 percent to 1,166.
The U.S. jobs figures have given stock markets additional impetus following a couple of bumper days, when hopes grew of a Europe-wide plan to fix the banking sector. Thursday's decisions by the Bank of England to launch new monetary stimulus and a big liquidity operation from the European Central Bank have also helped support investor sentiment.
"Hopes that European politicians have a good understanding on the potential need to recapitalise the banking system has been key support to risk appetite in recent sessions," said Jane Foley, an analyst at Rabobank International. "The very nature of the political process is slow, however, suggesting that once again there is room for disappointment and volatility in the markets."
German Chancellor Angela Merkel reinforced hopes Friday by saying Europe's banks should look first to raise money in the private sector before turning to governments to bolster their financial cushions against potential losses from the continent's sovereign debt crisis.
An upcoming summit of the bloc's 27 leaders should send a "signal" regarding a coordinated recapitalization of Europe's banking sector, Merkel said in Berlin.
Helped by the rising investor optimism, the euro traded 0.3 percent higher at $1.3467.
Earlier in Asia, Japan's Nikkei index rose 1 percent to close at 8,605.62 after the country's central bank said the economy is "picking up" and predicted an eventual return to a moderate recovery.
South Korea's Kospi index jumped 2.9 percent to close at 1,759.77 and Hong Kong's Hang Seng ended 3.1 percent higher at 17,707 after surging 5.7 percent the day before.
Markets in mainland China were closed for a weeklong holiday.
Oil prices tracked equities higher _ benchmark crude oil for November delivery was up 83 cents at $82.42.
Kelvin Chan in Hong Kong contributed to this report.