European shares rose to four-month highs on Monday on expectations that the European Central Bank and the U.S. Federal Reserve will provide stimulus to support their struggling economies.
Inflows into safe-haven German government bonds waned, keeping prices close to three-week lows after ECB President Mario Draghi said the central bank would do whatever it takes to preserve the euro, a message echoed by German Chancellor Angela Merkel and French President Francois Hollande.
The rhetoric raised expectations that the ECB could take bold measures to lower soaring Italian and Spanish borrowing costs and supported riskier assets. Italy's benchmark 10-year borrowing costs eased below 6 percent and the country managed to sell bonds at the top of its planned issue range of up to 5.5 billion euros on Monday.
However, some investors doubt that ECB policymakers will deliver in line with market expectations when they meet on Thursday, and this kept the euro lower and checked gains in commodities.
Germany's Bundesbank is opposed to a resumption of the ECB's secondary market bond-buying programme as well as the idea of giving the euro zone rescue funds a banking licence which would give them more firepower to fight the crisis.
This makes the timing and nature of any action rather uncertain. Euro zone officials have said September is shaping up to be a "make-or-break" month in the search for a resolution to the three-year-old debt crisis.
"It seems that policymakers are taking things more seriously," Commerzbank rate strategist Rainer Guntermann said. "Expectations are high ... but for the rally to continue we may need more colour, more details and maybe some action."
The FTSEurofirst 300 index of top European shares was up 1 percent at 1,066.64 points, a level not seen since early April, while the euro zone's blue chip Euro STOXX 50 index was up 1.4 percent at a three month high.
Their gains bolstered global stocks. The MSCI world equity index was 0.35 percent higher at 316.56 points, extending gains into a third straight day and trading at levels last seen in early July.
U.S. stock index futures pointed to a sluggish open on Wall Street on Monday, with futures for the S&P 500, the Dow Jones and the Nasdaq 100 flat to slightly lower.
Despite the rise in European stocks, the euro fell 0.3 percent to $1.2275, well below a three-week high of $1.2390 touched on Friday. It was still above a two-year low of around $1.2042 struck last week before Draghi's comments.
"There is a risk of disappointment at the ECB meeting on Thursday, but the market can continue to price ECB action and drive the euro higher over the days ahead," said Michael Sneyd, FX strategist at BNP Paribas.
Investors will keep an eye on U.S. Treasury Secretary Timothy Geithner, who will meet German Finance Minister Wolfgang Schaeuble and Draghi on Monday. The U.S. Treasury said they will discuss the U.S., European and global economies.
The U.S. central bank also holds a policy meeting this week. Speculation is growing that the Fed will do more to bolster recovery, after data showed U.S. second-quarter gross domestic product expanded at a 1.5 percent annual rate, the weakest pace of growth since the third quarter of 2011.
Expectations of easing by the Fed supported oil and commodity prices. Brent crude hovered near $106 per barrel, having gained 8.5 percent this month while gold held steady above $1,620 per ounce on Monday.