World stock markets rallied on Wednesday as investors hoped that the Federal Reserve would respond to mounting signs of weakness in the global economy by providing more stimulus to the U.S. economy.
Economic reports have been largely negative in recent weeks, with consumer and business confidence slumping sharply in developed economies.
Although Fed Chairman Ben Bernanke last week did not signal any new help from the central bank _ but rather suggesting the government should act to boost growth _ he left the door open to more stimulus if needed.
Minutes from the Fed's latest meeting, released late Tuesday, showed that its officials discussed a range of options to help the economy, including buying more Treasury bonds.
"Economic news continues to head downhill yet markets are taking evidence of slowing growth as a likely trigger for more Fed stimulus," said Mitul Kotecha, analyst at Credit Agricole CIB.
Britain's FTSE 100 ended the day 2.4 percent higher at 5,394.53 while France's CAC-40 closed 3.1 percent higher at 3,256.76.
Germany's DAX rose 2.5 percent at 5,784.85. Shares in Deutsche Telekom slumped 7.6 percent after the Justice Department filed a lawsuit to stop the company's merger of its unit T-Mobile USA with AT&T Inc.
Wall Street also posted gains in the morning. The Dow Jones industrials gained 0.4 percent to 11,610.96 and the S&P 500 rose 0.6 percent to 1,220.44.
Helping the rally was a report showing U.S. factory orders rose 2.4 percent in July, the biggest increase since March.
Analysts, however, say market sentiment remains fragile and the stock market will struggle to keep rising in the face of a weakening in economic indicators.
The latest European data published Wednesday was in fact downbeat _ inflation remained steady at 2.5 percent, above the official target, while unemployment was stuck at 10 percent, showing almost no improvement from 10.2 percent a year earlier.
The weakness in Europe is particularly worrying for investors because it is largely due to a slowdown in Germany, the region's largest economy, which had been driving growth during the past 18 months of debt crisis turmoil.
One of the main concerns is that as the labor market fails to heal, consumer spending will remain poor, weighing on growth in coming quarters.
That trend was evident in the earnings of Carrefour, the French retailing giant which on Wednesday posted an unexpected net loss in the first half and abandoned its growth target for the year. Its share price close down 0.5 percent after slumping earlier.
In Asia, Japan's benchmark Nikkei 225 logged a fifth day of gains to close narrowly up at 8,955.20 after spending part of the day in negative territory.
Hong Kong's Hang Seng jumped 1.6 percent to 20,534.85 and South Korea's Kospi gained 2 percent at 1,880.11. Australia's S&P/ASX 200 rose 0.6 percent at 4,296.50. Benchmarks in the Philippines, Taiwan and Singapore also rose.
Mainland Chinese shares were mixed, with the benchmark Shanghai Composite Index gaining marginally to 2,567.34 after dipping almost 1 percent earlier in the day. The Shenzhen Composite Index lost 0.4 percent to 1,143.34.
In currencies, the euro dropped to $1.4416 from $1.4447 late Tuesday in New York. The dollar fell to 76.50 yen from 76.72 yen.
Benchmark oil for October delivery rose 33 cents to $89.23 in electronic trading on the New York Mercantile Exchange. Crude rose $1.63 to settle at $88.90 on Tuesday.
In London, Brent crude for October delivery rose 37 cents to $114.39 on the ICE Futures exchange.
Pamela Sampson in Bangkok and Fu Ting in Shanghai contributed to this report.