US and European shares retraced all their losses for the year as banks in Europe gained even as questions arose over a pledge by European Union leaders to publish details of "stress tests" on the health of the banking sector.
Analysts suggested the tests to be published in July would boost investor confidence in European banks.
The euro headed toward its biggest weekly gain in more than a year on the Spanish bond auctions, while the US dollar appeared increasingly vulnerable to further losses after falling below a key level.
German government bonds fell and peripheral issues rallied with immediate pressures over Spain's fiscal health easing after the successful debt auction, and as equities and the euro rose.
The risk premium that investors demand to hold Spanish debt rather than German benchmark bonds fell to 192 basis points after hitting a euro lifetime high of 238 on Thursday.
"We think concerns about Spain's refinancing risk are excessive, and the current price action has gone too far," said Laurence Mutkin, analyst at Morgan Stanley in London.
"However, concerns about the Spanish banking sector are likely to persist, and we perceive nearly all the event risk to be on the downside," he said.
Spanish stocks rose 2.2 percent, lifted by a rally in bank shares.
European shares rose for the eighth consecutive session, the longest winning streak in 11 months, also boosted by banks.
Societe Generale Credit Agricole and UBS gained 1.7 to 6.1 percent.
The pan-European FTSEurofirst 300 index of top shares closed up 0.3 percent at 1,044.52 points, its highest close since May 13.
"A positive day, but there is still a lot of resistance on the top side," said Phil Roberts, technical analyst at Barclays Capital.
MSCI's all-country world index gained about 0.2 percent.
The index has rebounded around 7 percent since its June 7 close and gained about 3 percent this week.
Its emerging markets counterpart outperformed and was up almost 0.7 percent.
US stocks were largely higher and were set for back-to-back weekly gains, though the market was choppy as investors braced for volatility ahead of the expiration of stock options.
Basic materials stocks took the lead as Wall Street traded in a very tight range near break-even.
Before 1 p.m., the Dow Jones Industrial Average was up 3.02 points, or 0.03 percent, at 10,437.19. The Standard & Poor's 500 Index was down 0.56 points, or 0.05 percent, at 1,115.48.
The Nasdaq Composite Index was down 4.21 points, or 0.18 percent, at 2,302.95.
The euro slipped below $1.24 in afternoon trading after trading higher earlier in the session.
The euro was down 0.15 percent at $1.2359. Against the yen, the dollar was down 0.33 percent at 90.68.
The dollar rebounded against a basket of major currencies, with the US Dollar Index up 0.03 percent at 85.713.
"We had some nice euro gains and dollar weakness over the course of this week. We're going to see whether the euro is going to sustain these gains and press on toward $1.25," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
US Treasury prices drifted lower in light trading as the market cleaved tightly to a yield range established over the past week and a half and the day's planned events held little for investors looking for tradable Treasury price influences.
The benchmark 10-year US Treasury note was down 5/32 in price to yield 3.21 percent.
Gold rallied to a record high near $1,260 an ounce as momentum triggered by buying of the metal as a haven from sovereign and financial risk pushed prices through technical resistance to near their previous peak.
Spot gold prices rose $15.80, or 1.27 percent, to $1,260.10, just off a record high of $1,260.20. US gold futures for August delivery hit a record $1,262.00.
Gold, whose two main drivers are jewelry and investment buyers, is viewed as a safe-haven investment in times of economic trouble.
