LONDON – European stock markets closed mostly higher Wednesday on expectations of interest rate cuts around the world starting with the U.S. Federal Reserve, while U.S. stocks were up for the second day running.
The Dow Jones industrial average was 96.45 points, or 1.1 percent, higher at 9,161.57 after Tuesday's 11 percent jump, the second biggest daily gain ever.
That rally, which started after European exchanges closed on Tuesday, helped stocks rise across Europe all day.
Britain's FTSE 100 index of leading British shares closed 316.16 points, or 8.1 percent, higher at 4,242.54 and France's CAC-40 was up 287.65 points, or 9.2 percent, at 3,402.57.
Germany's DAX was slightly lower though after a 40 percent slump in Volkswagen AG shares. VW's biggest shareholder Porsche AG said it will offer some stock to ease liquidity constraints that had pushed up VW shares fivefold in the preceding two days.
The DAX closed 14.76 points, or 0.3 percent, down at 4,808.69.
Earlier, Japan's Nikkei index closed 589.98 points, or 7.7 percent, higher at 8,211.90 in the wake of the Dow Jones' 889 point rally Tuesday.
The renewed buying has been stoked by expectations that both the U.S. Federal Reserve and the Bank of Japan will cut interest rates this week and provide a further stimulus to the world economy, which should foster some renewed buying appetite in markets.
The Fed is expected to cut its target fed funds rate by half a percentage point to 1 percent later Wednesday. Markets are also holding out the hope the Bank of Japan would trim its interest rate a quarter percentage point from the already low 0.5 percent.
The European Central Bank and Bank of England are also expected to follow suit and cut borrowing costs at their next scheduled rate-setting meetings next Thursday. There's even some talk that the two banks may bring forward their expected rate cuts to Thursday.
"Bringing the already anticipated rate cut forward by a week would actually make sense and avoid unnecessary confusion in currency markets," said Howard Wheeldon, senior strategist at BGC Partners, who puts the odds of this happening at 50-50.
Despite signs that some investors are looking for bargains after the turmoil of the last month, a sense of unease still prevails with the world economy and financial system fragile, evidenced overnight by the $25 billion package to help Hungary.
"We would continue to warn that the stabilization in equity markets....is still fragile," said Hans Redeker, an analyst at BNP Paribas.
Elsewhere in Asia, the regional rally fizzled by the afternoon as traders cashed in profits amid fresh worries about company earnings.
Hong Kong's Hang Seng Index, up nearly 5 percent in early trading, trimmed its gain to just under 0.9 percent in volatile trade after a spectacular 14.4 percent rise the day before. Australia's S&P/ASX200 climbed 1.3 percent, helped by higher commodity prices.
South Korea's index pared its morning gains and dropped 3 percent as bank stocks pulled back on fears they may cut dividends after the government guaranteed their foreign currency loans.
Japan's stocks were helped by another fall in the value of the yen, which prompted investors to buy exporters like Toyota Motor Corp., which shot up 10.4 percent. Honda Motor Co. jumped 18 percent even though on Tuesday it reported a 41 percent drop in quarterly profit and lowered its forecast for the full year.
The yen has softened since jumping to about 91 to the dollar Friday. On Wednesday, the dollar was trading at about 97 yen after surging above 98 yen Tuesday, but up sharply from 94 yen late Monday.
Oil prices have also risen on the back of the rebound in global stock markets. Light, sweet crude for December delivery up $4.05 to $66.78 a barrel in London trade on the New York Mercantile Exchange. The contract slid 49 cents overnight to settle at $62.73, the lowest closing price since May 15, 2007.
On the currency front, the euro was higher at $1.2883, while the pound was up at $1.6187.
AP Business Writers Carlo Piovano in London, Jeremiah Marquez in Hong Kong and Kelly Olsen in Seoul contributed to this report.