European shares and commodity prices bounced on Wednesday after finance ministers agreed to safeguard banks from the spreading sovereign debt crisis, though the euro hovered near a nine-month low against the dollar.
World stocks and commodities, such as Brent crude, were hit hard in the past few sessions on mounting concerns that a debt default by Greece in the coming months could lead to a banking crisis, which would aggravate a worldwide economic slowdown.
France and Belgium overnight had to rescue financial services group Dexia -- the first European lender to have to be bailed out because of the euro zone debt crisis.
European Economic and Monetary Affairs Commissioner Olli Rehn told the Financial Times on Tuesday that the ministers, who have hitherto rejected any concerted bank recapitalisation, had a new sense of urgency.
The Dexia rescue also suggested policymakers had become more aware of the seriousness of the threat, helping European equities to recover on Wednesday, though some analysts remained sceptical.
"This rally may not last. Lots of stocks look cheap. We need a strategy for resolving the sovereign debt crisis in the euro zone. We need a strategy to get on top of the U.S. debt problem," Jeremy Batstone-Carr, strategist at Charles Stanley, said.
"Until we get answers, the market can stay cheap. Economic authorities in Europe have continually failed to come up with a robust policy. Now they're in the last chance saloon."
The STOXX Europe 600 share index advanced 1.5 percent on Wednesday, with banking shares up 2.3 percent. Dexia gained 3 percent after losing more than one-third of its value in the previous four sessions.
The pan-European share index, which has lost 20 percent so far this year, carried a 12-month forward price-to-earnings ratio of 8.8 versus the S&P 500's 10.7 and Japans' TOPIX index's 11.4, data from Thomson Reuters Datastream showed.
Italy's share benchmark put on 1.1 percent, despite Moody's lowering its credit rating on Italy late on Tuesday by three notches to A2. The agency cited a "material increase" in funding risks for euro zone countries with high levels of debt and warning that further downgrades were possible.
However, the move only brought Moody's rating of Italy in line with that of rival Standard & Poor's, which cut the country by one notch to single-A last month.
Yields on 10-year Italian government bonds rose 4.8 basis points to 5.545 percent, while those on 10-year benchmark German Bunds rose 2.5 basis points to 1.746 percent after falling in the previous three sessions.
Adding to the gloom, the euro zone's private sector shrank for the first time in two years in September, contracting faster than first reported as new business dried up while the debt crisis cut expectations for the future to two-year lows, surveys showed on Wednesday.
The euro was down 0.3 percent at $1.3295 and 0.6 percent at 101.93 yen , while the dollar was off 0.5 percent against a basket of major currencies.
DETAILS, DETAILS, DETAILS
Many in the foreign exchange market remained firmly negative on the euro, and analysts said if investors sensed that European policymakers continued to drag their feet in solving the debt problems, the common currency could fall more.
Still, while the euro is down more than 6 percent against the yen and the Swiss franc this year, it has lost only 0.6 percent against the dollar.
"At this point, there's just been news of discussions about a possible bank recapitalisations, there's no details yet," said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.
"There's a high risk of a further sell-off if we don't get details on this soon."
World stocks measured by MSCI All-Country World Index put on 0.4 percent, after hitting a 15-month low the previous session.
Asian shares outside of Japan added 0.4 percent, though Japan's Nikkei average fell 0.9 percent.
Copper rose 2 percent to trade below $7,000 a tonne, snapping a five-day losing streak, while Brent crude added 1.6 percent to above $101 a barrel after a three-session losing run.