World markets were mixed on Tuesday as investors hoped the Federal Reserve would signal new stimulus measures. But concern over Greece's ability to form a stable government and Spain's rising borrowing rates kept investors on edge.
By the afternoon, Britain's FTSE 100 was up 1.3 percent to 5,561.75 and Germany's DAX added 0.9 percent to 6,306.76. France's CAC-40 rose 0.6 percent to 3,086.23.
U.S. futures opened higher ahead of a Federal Reserve meeting which is expected chart a course for the U.S. economy. Dow Jones industrial futures rose 0.6 percent to 12,815 while S&P 500 futures were 0.1 higher at 1,344.
It was unclear whether the Fed would take any new action when its two-day meeting ends Wednesday. Many expect the central bank to extend a program in which it sells short-term bonds to buy long-term ones. The Fed could also launch a new round of bond buying aimed at lowering mortgage rates, although the impact of such a move on markets was unclear.
Analysts said that, overall, the Fed was likely to provide some form of support to market confidence as the U.S. economy continues to struggle and Europe's debt crisis rages on.
A weekend electoral victory by Greek conservatives, who favor upholding an austerity program that their country entered into for an international bailout, only temporarily relaxed fears of a chaotic exit by Greece from the euro.
The next crucial question for the country, which is expected to form a government this week, will be whether it can ease some of its austerity terms. Several European officials have said it's necessary but Germany has so far opposed such a move.
Besides Greece, the focus was also on Spain, whose borrowing costs surged this week above the 7 percent level that had forced other European countries to seek international help. The rate reflects what return investors are willing to accept when a country auctions its bonds.
On Tuesday, interest rates on short-term Spanish debt soared past 5 percent in an auction that raised (EURO)3.39 billion ($4.28 billion). Worries about Spain's ability to repay its debt grew last week, when the country agreed to accept a eurozone loan of up to (EURO)100 billion to shore up its ailing banks, which are sitting on massive amounts of soured real estate investments.
The higher bond rate, however, was largely as expected, helping Madrid's IBEX 35 index to rise 1.8 percent, in line with the broader market.
Investors were eyeing the Group of 20 summit of world leaders in Mexico for signs they would boost economic growth or find solutions to the European crisis.
Analysts at Credit Agricole warned that market patience with Europe's troubled economies was running out and that any "G-20 statements or commitments to boost IMF resources will do little to ease tensions."
The International Monetary Fund said Monday that it raised $456 billion to fight the financial crisis after emerging economies such as China, Brazil and Russia pledged to expand their funding of IMF funds.
Earlier, Asian stocks mostly closed lower. Japan's Nikkei 225 index fell 0.8 percent to 8,655.87 while Australia's S&P/ASX 500 lost 0.3 percent. South Korea's Kospi dropped 0.3 percent. Benchmarks in mainland China and Taiwan fell.
Benchmark oil for July delivery added 77 cents to $84.04 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 76 cents to finish at $83.27 per barrel.
In currencies, the euro rose to 1.2648 from $1.2580 late Monday in New York. The dollar fell to 78.89 yen from 79.13 yen.
Pamela Sampson contributed to this report from Bangkok.