By PAN PYLASAP Business Writer
LONDON (AP) - Markets breathed a huge sigh of relief Friday after Europe's leaders agreed a series of measures they hope will help contain the continent's crippling debt crisis.
Stocks around the world recorded one of their best sessions in weeks, while the euro rallied over two U.S. cents against the dollar and oil prices pushed back above $80 a barrel.
Perhaps most importantly for markets, the 17 countries that use the euro currency agreed they will let funds intended to bail out indebted governments funnel money directly to struggling banks as well. They said the move will "break the vicious circle" of bank bailouts piling debt onto already stressed governments.
In the run-up to the meeting, investors had expected the summit - like so many meetings before it - would not produce a solution powerful enough to restore the confidence of markets.
Analysts said the proposals from the summit represented credible steps in the region's efforts the crisis. But they say that they are only first steps.
"Just when you're about to lose all faith in Europe's leaders, they finally make some progress," said Benjamin Reitzes, an analyst at BMO Capital Markets.
In Europe, Germany's DAX was 3.5 percent higher at 6,364 while the CAC-40 in France rose 3.5 percent too to 3,158. The FTSE 100 index of leading British shares was 1.8 percent higher at 5,594.
The biggest rises were recorded in Spain and Italy, the eurozone's third and fourth largest economies, which have been dragged into the debt crisis mire over the past year. Milan's FTSE MIB was up 4.5 percent while Madrid's rose 4 percent.
Perhaps the greatest gauge of the markets' optimistic response to the summit declarations was in the bond markets. Yields on Spanish and Italian debt fell across the board. Spain's was down 0.31 percentage points at 6.59 percent. Spain recently saw its rate edge over the 7 percent level which is seen as unsustainable over the long term.
"Last night's actions will act to reduce the funding costs incurred by those member states hardest hit by the crisis, allowing struggling sovereigns to roll over their debts and regain confidence," said David White, a financial trader at Spreadex.
The optimistic mood was evident in the U.S. too where the Dow Jones industrial average was trading 1.4 percent higher at 12,775 and the broader S&P 500 index rallied 1.5 percent to 1,349.
Friday's rally started toward the latter end of the Asian session as the news from Brussels emerged and benchmarks in Japan, South Korea and Australia all reversed early falls to move higher.
Japan's Nikkei 225 index rose 1.5 percent to close at 9,006.78, its highest finish since May 10. South Korea's Kospi gained 1.9 percent to 1,854.01 and Australia's S&P/ASX 200 added 1.2 percent to 4,094.60.
Hong Kong's Hang Seng advanced 2.2 percent to 19,441.46.
Oil prices also rallied hard, with benchmark oil for August delivery up $4.16 to $81.86 a barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.