Having ended three of the last four sessions in the red, the FTSEurofirst 300 .FTEU3 rose 0.4 percent when equities trading resumed in Europe.

Helped on by the expiry of options contracts, London's FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI opened between 0.3 and 0.6 percent higher after Australian, Japanese and Hong Kong markets all rose. .L .EU .N

"Volatility has been crushed recently and optimism increased dramatically, as has the market," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages around $500 million of assets.

"The main thing to look at today is if the market can actually sustain these levels after expiry (of options) as well. That will tell us a lot."

Helping the mood was a report in the Financial Times that Spain was working behind the scenes on a rescue program which in turn will allow the ECB to begin potentially unlimited purchases of Madrid's bonds.

The euro, which has lost around 1.5 percent since hitting a 4-1/2 month high a week ago, was up 0.2 percent at $1.2987 when European trading got under way at 0700 GMT.

Safe-haven currencies such as the dollar and the yen were slightly pressured, with the yen broadly flat against the dollar at 78.14 yen. The Australian dollar, which is often used to gauge risk sentiment, gained 0.4 percent to $1.0478.

In bond markets, the appetite for risk continued its cautious recovery despite Italy's government warning the country's recession would be far worse than feared ID:nL5E8KKL99].

December Bund futures were 45 basis points lower at 139.76 while Spain and Italy's 10-year bond yields dropped slightly.

(Additional reporting by Tricia Wright; Editing by Alastair Macdonald)

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