European stock markets and the euro edged higher on Tuesday, rebounding from sharp losses a day earlier and ahead of a key EU summit on how best to tackle the eurozone debt contagion.
Approaching midday in London, the benchmark FTSE 100 index of leading shares rose 0.15 percent to 5,458.87 points.
Frankfurt's DAX 30 climbed 0.20 percent to 6,144.89 points and in Paris the CAC 40 gained 0.12 percent to 3,025.67.
Madrid's IBEX 35 index won 0.13 percent to 6,631.90 points.
"After a miserable start to the week, shares were able to shrug off some of the losses from the previous session with some support from German consumer sentiment surprising to the upside," said Anita Paluch, a senior trader at Gekko Global Markets.
Top eurozone finance ministers meet in Paris on Tuesday in whirlwind efforts to ensure that the summit this week launches the EU towards far greater integration and stops debt contagion fires in Spain.
Ambition is high and tension is growing ahead of the summit, with financial markets worried the outcome might again be disappointing in terms of credibility.
European Union leaders due in Brussels on Thursday want to give EU authorities more power over eurozone national budgets, and to establish banking supervision across the single market, a top level report said.
The 17-nation eurozone is struggling to convince markets it can get to grips with spreading crises. The latest blows were a downgrading of 28 Spanish banks and a call for help from eurozone member Cyprus.
In foreign exchange deals on Tuesday, the euro dropped to $1.2504 from $1.2502 late on Monday in New York.
"The markets aren't holding out too much hope for a neat resolution to the sovereign debt crisis at this week's EU summit," said Kathleen Brooks, research director at online trading group Forex.com.
"Euro-dollar has been stuck in a very tight range in the last couple of days, which is a warning sign for traders: the outcome of this summit will be a major break-out event, either one way or the other for the single currency."
Spain on Tuesday paid sharply higher borrowing rates in a sale of 3.077 billion euros of short-term sovereign debt, the central bank said, a sign of high tension over its financial sector.
The borrowing rate on three-month bills nearly tripled to 2.362 percent from 0.846 percent in the last comparable sale on May 22. The rate on six-month bills rose to 3.237 percent from 1.737 percent on May 22.
The high rates attracted strong demand of 8.325 billion euros, the bank said in a statement, and Spain was able to borrow slightly more than the 2.0-3.0 billion euros it had planned.
Tension on the financial markets that lend to Spain has soared in recent weeks because of concerns over its banking sector, severely weakened by the collapse of a housing boom in 2008.
On Monday, Spain formally requested a rescue loan from a credit line of up to 100 billion euros ($125 billion) offered by its eurozone partners to secure the banks.
It did not say publicly how much of this amount it would borrow. Independent consultants last week said Spanish banks could need up to 62 billion euros to survive.
After Monday's announcement, Moody's credit agency hit 28 Spanish banks with new credit downgrades, leaving three-quarters of the industry in junk-bond status.
Eurozone member Italy joined Spain on Tuesday in paying investors higher rates of return at a bond auction, reflecting increasing unease over risk of contagion.
The government sold a total of 3.9 billion euros ($4.86 billion) worth of bonds, including 2.99 billion euros in zero coupon notes due to mature in 2014 at a yield of 4.712 percent compared with 4.037 percent on May 28.