Rising speculation that Spain will soon ask for help to keep its borrowing costs down continued to shore up markets on Wednesday in the run-up to a meeting of European leaders.
The surprise decision late on Tuesday by Moody's to maintain its credit rating on Spain has also helped shore up sentiment, and investors think it's only a matter of time before the country will make a request for help to Europe's bailout fund, a necessary condition for the European Central Bank to start buying its bonds in the markets.
Hopes that the uncertainty over Spain will come to an end soon helped the country's main IBEX index outperform its counterparts in Europe.
It was trading 1.5 per cent higher at 8,055, well ahead of the 0.2 per cent increase in Germany's DAX to 7,389 and the 0.3 per cent rise in France's CAC-40 to 3,513.
The FTSE 100 index of leading British shares meanwhile was 0.5 per cent higher at 5,891.
"The biggest catalyst for equity markets was mounting speculation that Spain was close to finalising the terms of a formal bailout request from the EU that would allow the ECB to start buying its bonds," said Cameron Peacock, market analyst at IG Markets.
The Spanish government has introduced a series of austerity measures in a bid to bring down its deficit and convince investors it can manage its finances without outside help.
ECB has offered to buy unlimited amounts of debt by struggling European countries to help lower their borrowing costs - but governments first must apply for a bailout.
The euro has also been buoyant over the past few days on the back of the rising Spanish speculation. By early afternoon London time, it was trading at $1.3115, a one-month high.
Wall Street was poised for a steady opening, with both Dow futures and the broader S&P 500 futures up 0.1 per cent. How US stocks will open could well hinge on the next batch of corporate earnings statements from the likes of Bank of America and PepsiCo.
So far, the latest quarterly earnings season has generally impressed and that's helped the markets this week, along with a run of upbeat US economic indicators.
Earlier in Asia, Japan's Nikkei 225 stock index closed 1.2 per cent higher at 8,86.55 while Hong Kong's Hang Seng gained 1 per cent to 21,411.64. In mainland China, the main index in Shanghai rose 0.3 per cent to 2,105.62.
In the oil markets, a barrel of benchmark New York crude was 12 cents higher at $92.21 a barrel.