A round of confidence-building corporate deals supported global stocks Tuesday, despite fresh tightening measures in China, another savage credit rating downgrade of Greece and more weak U.S. economic data.
Over the past two months, the economic news flow has turned distinctly negative, particularly from the U.S., and many investors think the surge in share prices in the early part of the year may have been overdone.
Some relief came from corporate deals that prompted investors to look for potential takeover targets. In particular, news that Avis Budget has agreed to buy its European counterpart Avis Europe in a $1 billion deal has helped fuel hopes that further corporate activity will emerge in the days to come, especially now that many companies have shored up their cash positions following the recession.
"Companies with healthy balance sheets are clearly looking for sound investments," said Will Hedden, sales trader at IG Index.
Though Avis Europe is not part of the FTSE 100 of leading British shares, its takeover helped buoy sentiment and the index was up 0.7 percent at 5,811. Germany's DAX was 1.8 percent higher at 7,211 while the CAC-40 in France rose 1.4 percent to 3,860.
Wall Street was set for a solid opening, too _ Dow futures were up 0.8 percent at 11,981, while the Standard & Poor's 500 futures rose 1.1 percent to 1,279.
Before the open, U.S. statistics showed retail sales fell by 0.2 percent in May from the previous month. That was better than expectations for a 0.4 percent decline, but does little to suggest an improvement in the U.S. economic newsflow.
"The immediate market response is prone to be slightly risk positive in so much as the data does nothing to amplify growth fears, leaving the slightly better risk tone that prevailed before the numbers," said Alan Ruskin, an analyst at Deutsche Bank.
Sentiment in the markets has also been buoyed somewhat by Chinese economic data earlier. Though figures showed inflation running at a three-year high of 5.5 percent, that was slightly lower than the 6 percent that was expected by many in the run-up to the data.
The response of the People's Bank of China was not as aggressive as had been feared. Instead of raising interest rates, the central bank increased the reserves banks are required to hold by a further 0.5 percentage point to a record 21.5 percent of deposits. The sixth increase this year is designed to help keep a lid on inflation.
"Although Chinese tightening is not generally welcomed by the markets, a gradual slowdown in the economy is a far better scenario than a hard-landing," said Jane Foley, an analyst at Rabobank International.
In currency markets, investors continue to monitor developments surrounding the Greek debt crisis ahead of next week's meeting of eurozone finance ministers in Brussels, where a fresh Greek bailout is on the agenda.
An unscheduled meeting of the eurogroup ministers Tuesday has stoked speculation that they are preparing to work out a way for the private sector to increase its share in helping Greece, a move the European Central Bank has so far opposed. The meeting takes place just a day after Standard & Poor's downgraded its rating on Greece's debt to triple C, the lowest of any sovereign in the world.
Tuesday's meeting takes place amid signs that policymakers in Europe have divergent views on how to deal with the Greek crisis, with the European Central Bank and the German government, in particular, at odds on getting Greece's bondholders to share the burden of the bailout.
By mid afternoon London time, the euro was 0.1 percent firmer at $1.4432.
Earlier in Asia, Japan's Nikkei 225 index rose 1.1 percent to close at 9,547.79 while South Korea's Kospi rose 1.4 percent to 2,076.83. Hong Kong's Hang Seng fell less than 0.1 percent to 22,496.
In mainland China, shares advanced after the lower than anticipated inflation figures. The benchmark Shanghai Composite Index gained 1.1 percent to 2,730.04, while the Shenzhen Composite Index of China gained 1.6 percent to 1,128.42.
Oil prices recouped some recent lost ground though fears over the pace of the global recovery remain.
Benchmark crude for July delivery was up 30 cents to $97.60 in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.