Europe's main stock markets nudged higher on Tuesday, with the financial sector lifted as European powers met in Brussels for talks on progress towards a banking union, dealers said.
Sentiment was also boosted by news that Greece had begun a debt-buyback programme and after eurozone finance ministers nodded through a bailout for Spain's troubled banks.
In cautious midday deals, London's benchmark FTSE 100 index climbed 0.10 percent to 5,877.12 points, on the eve of the British government's budget update and latest economic growth forecast.
Frankfurt's DAX 30 gained 0.26 percent to 7,454.71 points, the Paris CAC 40 won 0.65 percent to 3,589.81 and Madrid's Ibex 35 added 0.50 percent to 7,928.80.
The European single currency meanwhile rallied to a six-week peak at $1.3085, from $1.3051 late in New York on Monday. Gold prices however dipped to $1,705.45 an ounce on the London Bullion Market, from $1,720.
"European stock markets are trading higher this morning as finance ministers work towards a banking union," said analyst Craig Erlam at trading group Alpari.
"It still remains unclear exactly how the process will work, however the fact that European leaders are still insistent that the details will be ironed out by year-end is being taken as a positive."
Finance ministers from the 27-member European Union met on Tuesday to discuss policing the banking sector more effectively from September 2013, in a bid to prevent another global financial crisis.
Proposed new safeguards are part of wider moves towards fuller economic and political integration deemed necessary to break the vicious circle between government and bank debt that has brought the European economy to a standstill.
"Market participants are optimistic that European finance ministers will be able to flesh out some firm proposals for a single bank supervisor for the euro area in today's meeting," added ETX Capital analyst Ishaq Siddiqi.
"Banks across the region are putting on a good show," he said, but cautioned over persistent concerns over the looming fiscal cliff in the United States.
In London, Royal Bank of Scotland shares gained 0.77 percent to 294.85 pence and Lloyds Banking Group added 0.63 percent to 46.03 pence.
Across in Frankfurt, Commerzbank stock jumped 1.46 percent to 1.386 euros and Deutsche Bank stock rallied 1.54 percent to 34.52 euros.
And in Paris, lenders Credit Agricole and Societe Generale saw their share prices soar 2.99 percent and 2.29 percent, to stand at 6.087 euros and 28.58 euros respectively.
Shares in aerospace group EADS gained 2.80 percent and rose just above 27.0 euros from 26.44 euros at the close on Monday on expectations that later in the day the group will announce an agreement on a restructuring of its key shareholdings, held by France and Germany. The shares had already risen on Monday, and on Tuesday brokers at Barclays said they thought the shares could rise to 32.0 euros.
Greek bond buyback
Meanwhile on Monday, Greece launched its bid to buy back privately held debt at a big discount, freeing eurozone finance ministers to nod through 39.5 billion euros ($51.3 billion) to recapitalise Spain's banks next week.
Eurogroup chairman Jean-Claude Juncker also announced he would step down come year-end, although his successor remains far from clear, with France long resisting moves to hand the post to German Finance Minister Wolfgang Schaeuble.
At talks in Brussels, the Eurogroup declined to comment on results from day one of the Greek buyback operation, but gave a guarded welcome to preliminary bailout plans drawn up for Cyprus, expected to amount to 17 billion euros.
The debt buyback is the underlying condition for Greece to receive a crucial 43.7-billion-euro instalment of bailout funds from the European Union and International Monetary Fund.
Asian markets were mixed Tuesday following weak US manufacturing data and fears over US talks aimed at averting the fiscal cliff, while Hong Kong and Shanghai rebounded from the previous day's losses.
Tokyo fell 0.27 percent, Sydney eased 0.62 percent and Seoul lost 0.25 percent, while Hong Kong was 0.15 percent higher and Shanghai rose 0.78 percent.
US shares slid on Monday after the Institute for Supply Management (ISM) revealed that its index on manufacturing activity for November showed contraction following two months of expansion.
The purchasing managers index (PMI) fell to 49.5, below the 50 breakeven level, from 51.7 in October.
The Dow slid 0.46 percent, the S&P 500 fell 0.47 percent and the Nasdaq shed 0.27 percent.
US politicians have until the end of the month to agree a deal on cutting the country's huge deficit and avoid the fiscal cliff of huge tax hikes and spending cuts widely expected to tip the economy into recession if they take effect.