Hopes that Spain will be given a cash injection to stabilise its wobbling banking sector helped world markets rally today.
Spain has denied reports it has asked for a bail-out but traders remain optimistic it will be allowed to tap the eurozone rescue fund as it struggles to pay for the 19 billion euro (£15.4 billion) rescue of Bankia, its fourth biggest lender.
Meanwhile, the European Central Bank kept interest rates on hold at 1% but some traders believe a cut is imminent after president Mario Draghi said officials are ready to add more stimulus if necessary.
There is also speculation that the Bank of England will move to increase its quantitative easing programme tomorrow while the US Federal Reserve may also signal more money printing is on the cards after weak jobs figures last week.
The prospect of more stimulus measures boosted world markets despite growing fears the eurozone debt crisis is derailing the global recovery.
The FTSE 100 Index was up more than 2%, or 123.9 points at 5384.1, with banks and miners leading the way.
There were similar gains on markets in France and Germany, while the Dow Jones Industrial Average was up nearly 2% as the London market closed.
Governments have so far injected "unprecedented" levels of public money into banks - the European Commission approved 4.5 trillion euros of state aid - 37% of EU GDP - between October 2008 and October 2011.
A Commission statement said: "This averted massive banking failure and economic disruption, but has burdened taxpayers with deteriorating public finances and failed to settle the question of how to deal with large cross-border banks in trouble".
European Commission president Jose Manuel Barroso said: "Two weeks ahead of the (G20) summit in Los Cabos, the Commission is presenting a proposal which will help protect our taxpayers and economies from the impact of any future bank failure.
"Today's proposal is an essential step towards banking union in the EU and will make the banking sector more responsible. This will contribute to stability and confidence in the EU in the future, as we work to strengthen and further integrate our interdependent economies."
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The Solar Impulse, HB-SIA experimental aircraft approaches to make a night landing at Rabat airport , Morocco , Tuesday, June 5, 2012. The experimental solar-powered airplane arrived in Madrid on May 25, 2012 from Payerne, Switzerland, and now arrives at Rabat, Morocco on its first transcontinental trip. The mission is described as the final dress rehearsal for a round-the-world flight with a new and improved aircraft in 2014. (Photo credit: AP Photo/Abdeljalil Bounhar)
Venus passes in front of the sun, as visible from Hong Kong, Wednesday, June 6, 2012. From the U.S. to South Korea, people around the world turned their attention to the daytime sky on Tuesday and early Wednesday in Asia to make sure they caught the once-in-a-lifetime sight of the transit of Venus.(Photo credit: AP Photo/Vincent Yu)
A bird sits atop one of the domes of the landmark Taj Mahal as Venus, top left, begins to pass in front of the sun, as visible from Agra, India, Wednesday, June 6, 2012. People around the world turned their attention to the daytime sky on Tuesday and early Wednesday in Asia to make sure they caught the once-in-a-lifetime sight of the transit of Venus. (Photo credit: AP Photo/Kevin Frayer)
A Kashmiri woman collects lotus roots to feed cattle on Dal Lake in Srinagar on June 6,2012. Thousands of holiday goers have arrived in Kashmir valley to enjoy the beauty of its landscapes, as violence ebbs in the Muslim-majority state wracked by insurgency since 1989. An armed insurgency against Indian rule in Kashmir has claimed 47,000 lives since 1989 with separatists putting the toll twice as high. (Photo credit: TAUSEEF MUSTAFA/AFP/GettyImages)
Planet Venus, pictured as a black dot (at L), is seen in transit across the Sun in New Delhi on June 6, 2012. Sky-gazers around the world held up their telescopes and viewing glasses to watch a once-in-a-lifetime event as Venus slid across the Sun. (Photo credit: MANAN VATSYAYANA/AFP/GettyImages)
A woman visits the grave of her relative who died during the Korean War at Seoul National Cemetery on June 6, 2012 in Seoul, South Korea. South Korea today marks the 57th anniversary of the Memorial Day for those killed in the 1950-53 Korean War. (Photo credit: Chung Sung-Jun/Getty Images)
US Secretary of Defense Leon Panetta (C) inspects Indian troops during a welcoming ceremony at the Ministry of Defense on June 6, 2012 in New Delhi, India. Panetta is on a nine day visit to Asia seeking to build strategic ties across the region. (Photo credit: Jim Watson - Pool/Getty Images)
An Afghan youth shouts slogans against Iranian leaders and their government in front of the Iranian embassy in Kabul on June 6, 2012. Protesters burned an Iranian flag in protest to the hanging of some Afghans in Iran. Iran has one of the highest numbers of executions each year, with adultery, murder, drug trafficking and other major crimes all punishable by death. (Photo credit: SHAH MARAI/AFP/GettyImages)
Afghan demonstrators burn an Iranian flag in front of the Iranian embassy in Kabul on June 6, 2012. Protesters burned an Iranian flag in protest to the hanging of some Afghans in Iran. Iran has one of the highest numbers of executions each year, with adultery, murder, drug trafficking and other major crimes all punishable by death. (Photo credit: SHAH MARAI/AFP/GettyImages)
Palestinians inspect the damage to a chicken farm in Rafah town in the southern Gaza Strip on June 6, 2012, following an Israeli air strike, in which two Palestinians were wounded in two strikes according to medical sources. (Photo credit: SAID KHATIB/AFP/GettyImages)
Skywatchers, who gathered to witness the transit of Planet Venus, look through protective eyewear in a futile wait for a break in the clouds during overcast skies in Mumbai on June 6, 2012. Sky-gazers around the world held up their telescopes and viewing glasses to watch a once-in-a-lifetime event as Venus slid across the Sun. (Photo credit: INDRANIL MUKHERJEE/AFP/GettyImages)