Hopes that Greece will get more money to see it through the next couple of years helped lift market sentiment Friday, sending stocks in Europe and the U.S. as well as the euro sharply higher.
The mood in the markets was buoyed by a big Cabinet reshuffle in Greece and suggestions that Germany has softened its stance over the need for private creditors to shoulder a part of a second Greek bailout.
The centerpiece of Prime Minister George Papandreou's wide-ranging Cabinet reshuffle was the appointment of long-time rival Evangelos Venizelos to finance minister and deputy prime minister.
Papandreou will be hoping that the move brings an end to a damaging 48-hour political crisis that raised fears that Greece could run out of money in less than a month.
The reshuffle came after a seven-hour meeting between Socialist lawmakers and Papandreou on Thursday, at which they demanded that the prime minister remove inexperienced loyalists from the Cabinet and replace them with more experienced party veterans, mostly in their late-50s.
The hope in the markets is that Papandreou has done enough to get austerity measures through Parliament, which are necessary for the country to get more bailout funds.
Further relief came from news that Germany may be backing off from its tough stance to get private creditors to take their share of any future second bailout of Greece.
In a press conference with French President Nicolas Sarkozy, Germany Chancellor Angela Merkel agreed that private investors should be part of the solution but that their participation had to be on a "voluntary" basis.
"Hopes of a move forward regarding Greek debt have given a lift to sentiment," said David Jones, chief market strategist at IG Index. "It would be naive to believe that a small one day rally suggests that the good times are once again set to roll for stock markets."
In Europe, the FTSE 100 index of leading British shares closed up 0.3 percent at 5,714.94 while Germany's DAX rose 0.8 percent to 7,164.05. The CAC-40 in France ended 0.8 percent higher at 3,823.74.
Greek stocks did particularly well, with the main ATHEX index up 3.8 percent.
In the U.S., the Dow Jones industrial average was up 0.6 percent at 12,026 while the broader Standard & Poor's 500 index rose 0.5 percent to 1,274.
The euro was also a big gainer, climbing 0.7 percent on the day to $1.4316. On Thursday, it had fallen below $1.41 for the first time in three weeks as investors fretted about a possible Greek debt default.
Greece's debt crisis has been the main driver in markets this week, with concerns about the U.S. economy remain taking a back seat.
However, a survey Friday brought share prices in Europe and the U.S. down from earlier highs.
The University of Michigan's main consumer confidence index fell to 71.8 in June from May's 74.3. The consensus in the markets was for a modest increase to around 75.
"So not an encouraging result but confidence hasn't exactly fallen off a cliff," said Jennifer Lee, an analyst at BMO Capital Markets.
Oil prices continued to push lower Friday, with the benchmark rate on the New York Mercantile Exchange down another $1.35 to $93.60 a barrel.
Earlier in Asia, before the reshuffle and the German comments, stocks pushed lower.
Japan's Nikkei 225 index closed 0.6 percent lower at 9,351.40 while Hong Kong's Hang Seng index fell 1.2 percent to 21,695.26.
Mainland Chinese shares fell to their lowest level so far this year as investors reacted to news of a rise in the rate for Chinese central bank's three-month bills on Thursday, seen as a cue that an interest rate hike may be in the offing.
The Shanghai Composite Index fell 0.8 percent to 2,642.82, while the Shenzhen Composite Index fell 1.1 percent to 1,085.11.
Pamela Sampson in Bangkok contributed to this report.