European stocks followed Asian shares higher, reversing a late fall on Wall Street as the Financial Times report circulated late on Thursday, and the depressed euro also firmed.

The Spanish parliament passed by just one vote further tough measures to contain overspending, a move seen by analysts as a vital for Spain to ward off a threat of being dragged into a Greece-style debt crisis.

Highlighting the seriousness of the problem, Spanish press reports suggested that Spanish banks are encountering problems in borrowing money from foreign banks because of concern about the country's public finances.

In France, trades unions were organising street protests against a decision by the right-wing government to raise the pension age from 60.

The measures in Spain and France are the latest in a welter of draconian steps by European governments to reform public finances from top to bottom, from ministerial pay to unemployment benefits.

Market sentiment was also helped by optimistic data from the United States and a positive outlook for the world economy from the OECD.

But high deficits and debt in EU countries remain centre stage, with US Treasury Secretary Timothy Geithner visiting Germany on Thursday when the economy will dominate talks.

At Dutch bank ING, analyst Padhraic Garvey, referring to crisis programmes by European central banks in buying government bonds, commented: "We remain in a very difficult set of circumstances."

German Chancellor Angela Merkel, a pivotal figure in the eurozone debt crisis, said Germany would push "with all our strength" for a strong euro.

In a "very clear statement," she told business executives in Jeddah late on Wednesday: "Germany, as the largest exporting nation, the largest economy in the European Union, has strongly benefited from the euro in the past.

"Therefore, we will work with all our strength for a strong euro."

Overnight, the Financial Times reported that China was reviewing its huge holdings of eurozone debt, helping send Wall Street into reverse.

The Chinese State Administration of Foreign Exchange (SAFE) denied this on its website, saying: "The report is baseless."

"The European market was and is one of the most important investment markets for (China's) foreign exchange reserves and will remain so in future."

It expressed confidence that "the eurozone will definitely overcome the difficulties and maintain the stable and healthy development of the European financial market."

China has the biggest foreign exchange holdings in the world at just under 2.5 trillion dollars and re-exported a large part of its foreign earnings by buying government debt, most notably in the United States. China's holdings of eurozone debt are estimated at 514 billion euros (630 billion dollars).

On Wednesday, the Organisation for Economic Cooperation and Development gave a far more optimistic assessment of the global economy than seen in the markets but also warned that global imbalances were increasing again.

The OECD also stressed that European governments must act fast to cut overspending.

Imbalances in trade and capital flows are widely held to have been a root cause of the global financial crisis sparked nearly three years ago by the collapse of the US home finance market.

In Japan, where the economy has been in the doldrums for many years and public debt is high, official data showed a big rise in a trade surplus for the fifth month running, helped by a 19.8-percent rise in exports to the EU despite a sharp drop in the euro this year.

The yen has soared recently because concern about the eurozone debt crisis has caused funds to flow into the Japanese currency.

The latest data from the United States, still the weather vane for the global economy, supported the OECD's forecast that the economy there is on track for a robust rebound this year.

Data on Wednesday showed surprisingly strong activity in the key housing sector and strong demand for US manufactured goods.

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