Strong results from a key survey of German business eased financial markets' concerns over the European economy on Thursday, sending the euro to a 10-week high and dragging shares into positive territory.
Markets remain wary about the impact of higher oil prices and problems implementing Greece's bailout. The broader concern over the economy was also borne out by EU forecasts showing the euro zone would contract this year.
But German business sentiment rose for the fourth straight month in February, beating expectations and supporting hopes that the continent's largest economy could avoid slipping into recession in the current quarter.
"Little by little the (German) economy is picking up steam, even though there is a headwind from southern Europe and also from oil prices," said Rainer Sartoris, an analyst at HSBC Trinkaus.
The single currency jumped to $1.3330 after the survey was released, its highest level since December 12 and above the two-week high hit of $1.3293 hit after the second rescue package for Greece was agreed on Tuesday.
The FTSEurofirst 300 index of top European shares was up 0.3% at 1080.01 after opening little changed while the MSCI world equity index was up 0.22% despite a weak session in Asia.
But the EU forecasts showing a 0.3% contraction follow the release of Purchasing Manager's Indexes on Wednesday and add to fears that Europe is becoming mired in a vicious circle of poor growth and debt.
If a recession in the 17-nation euro bloc is confirmed it would be the second in three years as the public debt crisis damages business confidence and kills off hopes of a more lasting recovery from the 2008-2009 global financial crisis.
Oil prices, which put pressure on broader consumer and corporate demand, also rose further to nine-month highs due to concerns over heightened tensions between Iran and the West.
In early trade Brent crude for April delivery were holding near a high of $123 a barrel, trading at around $122.72.
Doubts about the ability of Greece to implement the tough austerity measures needed to qualify for a 130-billion-euro bailout package and avoid defaulting on its debt continued to weigh on debt markets.
Greece was due to approve legislation later today enforcing collective action clauses on its bondholders, in a bid to prevent private investors avoiding a key element of the rescue deal which forces them to accept large writedowns in the value of their holdings.
