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European markets helped by strong US open and Fed comments, but await reassurances on Greece
MILAN (AP) ' Gains on Wall Street helped steady European stocks Wednesday, as encouraging comments on economic growth from the Federal Reserve helped overlook the uncertainty created by Greece's decision to hold a referendum on its bailout package.
In the United States, the Federal Reserve held off on immediate moves to help the U.S. economy because stronger growth had bought some time to gauge the impact of steps already taken.
The central bank was optimistic about household spending, which has increased at a somewhat faster pace in recent months, and said inflation was in check.
The cautiously hopeful comments helped offset the concerns gripping investors in Europe. Stocks have struggled since Monday, when Greek Prime Minister George Papandreou unexpectedly announced he would call a national vote on Europe's latest plan, agreed only last Thursday.
Papandreou will be in the hot seat later in the day, when he will likely face a grilling from French President Nicolas Sarkozy and German Chancellor Angela Merkel about his surprise move to call the vote.
The Greek leader faces a confidence vote in Greek parliament on Friday. If he falls, the referendum would be off, and Greece would be headed to early elections. If the vote goes ahead, European leaders will push for it to be held as early as possible, to minimize the period of uncertainty hanging over markets.
Meanwhile, Italian Premier Silvio Berlusconi held meetings with his finance minister and other key policymakers to hammer out measures to weather the crisis. The Cabinet could meet to agree some immediate measures as early as Wednesday evening, before Berlusconi travels to Cannes, France for a G-20 summit on Thursday.
A rise in Italian borrowing rates this week has heightened calls for Berlusconi's immediate resignation ' a move economists have suggested is needed to restore confidence. Ratings agencies have downgraded Italy's sovereign credit grade citing a dysfunctional government.
The Dow Jones industrial average rose 1.4 percent to 11,823 while the S&P 500 rose 1.4 percent to 1,235. That gave a lift to European stocks, rattled earlier in the day.
Britain's FTSE 100 closed up 1.2 percent to 5,484.10, while Germany's DAX rose 2.3 percent to 5,965.63. France's CAC-40 gained 1.4 percent to 3,110.59.
The euro has also faced big selling pressure this week but rebounded 0.3 percent to $1.3741 on Wednesday.
The prospect that Europe's Oct. 27 bailout deal could be scrapped saw it plunge across the board this week.
The deal is key to solving the continent's debt crisis. It would require banks holding Greek government bonds to accept 50 percent losses and provide Greece with about $140 billion in rescue loans from European nations and the IMF. Greece has been relying on bailout loans since May 2010 to avoid bankruptcy.
Papandreou's unexpected call for a public vote on the aid package came just days before the leaders of the world's largest industrial and developing nations gather for the Group of 20 summit in Cannes, France on Thursday and Friday. The troubled eurozone will be the summit's emergency topic.
"The escalation in the Greek crisis and the increasing contagion risks in Italy threaten a disorderly default on Greek debt and the possibility of Greece exiting from the monetary union," said Neil MacKinnon of VTB Capital. "Italian bond yields rising in spite of the ECB purchasing Italian debt and a widening of the spread against Germany pushes Italy closer to a bailout, something the existing resources of the EU's rescue fund cannot manage."
Earlier, several key Asian indexes rebounded, with Hong Kong's Hang Seng shooting up 1.9 percent to 19,733.71. But Japan's Nikkei 225 index tumbled 2.2 percent to 8,640.42, its lowest close in three weeks.
Oil prices traded in fairly narrow ranges ' benchmark crude for December delivery was up $1.02 at $93.21 a barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson contributed from Bangkok.