Equities on both sides of the Atlantic pared early gains on better-than-expected US jobs data after the Federal Reserve offered a sober review of the outlook for the world’s biggest economy.
"Economic growth strengthened somewhat in the third quarter," the Fed said in a statement after its meeting at which it kept its interest rates steady, though it left the door open for more easing too.
The central bank pared its 2012 growth forecast to between 2.5 percent to 2.9 percent from a previous projection of 3.3 percent to 3.7 percent.
The Fed also reminded investors of the risks ahead, saying “recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated.”
It went further saying: "There are significant downside risks to the economic outlook, including strains in global financial markets."
On a positive note, US companies hired more workers than expected last month. The ADP National Employment Report showed that the economy's private sector added 110,000 jobs in October, exceeding economists' forecasts for an additional 101,000 jobs. ADP also boosted September's job additions, to a gain of 116,000 from the previously reported 91,000.
In afternoon trading in New York, the Dow Jones Industrial Average gained 0.80 percent, the Standard & Poor's 500 Index rose 0.96 percent and the Nasdaq Composite Index climbed 0.45 percent.
In Europe, the Stoxx 600 Index closed with a 0.9 percent gain for the session.
Even so, gains were limited as a resolution for the European Union’s sovereign debt crisis was thrown into fresh doubt by Greece’s unexpected plans for a referendum.
"After yesterday's sell-off, some bounce was expected, but we think there are a lot of hurdles for the euro to clear and given the risk events, we do not see it rallying much," Adam Myers, senior currency strategist at Credit Agricole in London, told Reuters.
The patience of Germany’s Angela Merkel and France’s Nicolas Sarkozy is running out as the leaders demanded that Greece’s George Papandreou and his government make up their mind soon as to whether Greece wants to remain in the euro zone.
An emergency meeting later today before the start of a G20 summit of major world economies comes as European leaders are still flabbergasted by Papandreou’s call for a referendum on the country’s most recent rescue package, agreed upon only last week.
Greece’s cabinet unanimously backed Papandreou’s plans today.
“The prospects of Greece leaving the euro have grown and investors are positioning for more bad news from politicians,” Henrik Drusebjerg, senior strategist at Nordea Bank AB in Copenhagen, told Bloomberg News.
“The other euro countries can’t sit around and wait until the Greeks are done with the referendum. Papandreou may be told today that the other 16 countries will go ahead with plans to bolster the euro area with or without Greece.”
Despite the pressure, Papandreou has stuck to his plans for the referendum which he expects to solidify Greece’s commitment to euro zone membership.
“The referendum will be a clear mandate and strong message within and outside Greece on our European course and our participation in the euro,” Papandreou told his ministers in Athens early today, Bloomberg reported, citing an e-mailed transcript. It will “ensure this course in the most decisive way.”
The euro gained 0.8 percent to US$1.3807, and advanced 0.4 percent to 107.66 yen.
The greenback dropped 0.35 percent against a basket of its major counterparts.