European stocks inched up on Thursday, halting a two-day retreat, which could bolster the market's recent positive trend. The euro hit a 2-1/2 month high against the dollar, after German Ifo survey beat forecasts and boosted expectations that Europe's biggest economy would escape a recession.

The Euro STOXX 50 volatility index .V2TX, Europe's main gauge of investor anxiety known as the VSTOXX index, dropped to a seven-month low on early on Thursday, signaling an improvement in investor risk appetite.

Brent crude futures added $1 to $123.90 a barrel on Thursday, lifted by escalating tensions between Iran and the West as well as a weaker dollar index.

On the macro front, investors awaited U.S. weekly jobless claims data, with economists forecasting a total of 354,000 new filings compared with 348,000 in the prior week.

Hewlett-Packard Co (HPQ.N) will be in the spotlight after saying after the bell on Wednesday that earnings fell nearly 44 percent. The world's No. 1 computer maker forecast a second-quarter profit below Wall Street estimates as it struggles with weak sales of PCs and printers. Shares of the company traded in Frankfurt (HPQ.F) were down 2.2 percent.

Bailed out Franco-Belgian bank Dexia (DEXI.BR) said it risked going out of business as it reported a 2011 net loss of 11.6 billion euros ($15.4 billion), hit by its break-up and exposure to Greek debt and other toxic assets.

Commerzbank (CBKG.DE) said euro zone market jitters continue to threaten earnings after its fourth-quarter results were spoiled by an almost 1 billion euros ($1.3 billion) related to Greek sovereign debt. The CEO also announced a 1 billion euro capital hike for the lender, which needs to plug a 5.3 billion euro capital hole to meet Europe's banking rules.

Potash Corp (POT.TO) (POT.N), the world's largest fertilizer producer, said on Wednesday it has extended temporary shutdowns at two of its largest potash mines as it battles to reduce inventories that are rising due to weak demand for the crop nutrient.

Jack in the Box Inc (JACK.O) reported better-than-expected quarterly results, helped by higher sales at its restaurants opened for at least a year.

Banks led U.S. stocks lower on Wednesday as the S&P 500 stalled near a 10-month-high after signs of weak European business activity rekindled concerns about a recession overseas.

The Dow Jones industrial average .DJI lost 27.02 points, or 0.21 percent, to 12,938.67. The S&P 500 Index .SPX dropped 4.55 points, or 0.33 percent, to 1,357.66. The Nasdaq Composite .IXIC fell 15.40 points, or 0.52 percent, to 2,933.17.

(Reporting by Blaise Robinson. Editing by Jane Merriman)

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