The top finance officials from Germany and the United States urged co-operation in the fight against the eurozone debt crisis after a meeting Monday that fuelled hopes Europe is preparing decisive action.
In a joint statement, US Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schaeuble expressed "confidence" the eurozone could carry out the reforms needed to escape the two and a half year debt crisis.
They emphasised "the need for ongoing international cooperation and coordination to achieve sustainable public finances, reduce global macroeconomic imbalances and restore growth," said the statement, issued after the meeting on the northern German island of Sylt.
Geithner was later to meet European Central Bank chief Mario Draghi, who last week touched off speculation the bank would resume its disputed bond-buying programme by vowing to do "whatever it takes" to preserve the euro.
No news conference was planned after the closed-door meeting in Frankfurt.
Stock markets in Europe were sharply higher, with equities up more than one percent in Germany and France and more than two percent in crisis-wracked Italy and Spain.
Following confidence-boosting statements by top European policymakers, traders are eyeing intervention to help Italy and Spain from the ECB and the European rescue fund, the European Financial Stability Facility.
These hopes were bolstered by a media offensive on the part of Eurogroup chief Jean-Claude Juncker who told major newspapers in France and Germany that Europe was preparing to take action.
"We have come to a crucial point," he told Le Figaro.
"We will act together with the ECB," he vowed, adding that the "pace and scope" still had to be worked out.
"There is no more time to lose," he said, adding that policymakers would review the market situation in the coming days.
German Chancellor Angela Merkel, seen as the linchpin of any possible crisis response, reiterated Sunday her determination to keep the 17-nation bloc together after a weekend phone call with Italian Prime Minister Mario Monti.
The two leaders "agreed that Germany and Italy will do everything to protect the eurozone," they said in a joint statement.
That followed a similar statement on Friday by Merkel and French President Francois Hollande, throwing their weight behind the euro project after a week in which Spain looked increasingly likely to request a full bailout.
Diplomatic efforts were set to continue as Monti announced he would meet his Spanish counterpart Mariano Rajoy in Madrid Thursday.
The verbal broadsides appeared to be working as Italy held a successful auction of five- and 10-year debt at lower rates.
Meanwhile, Spain insisted it was not planning to ask the eurozone to buy its bonds to drive down borrowing costs.
"In the end, the ECB will live up to its duty to prevent an escalating market panic that could shatter the eurozone and the ECB itself to pieces," predicted Holger Schmieding from Berenberg Bank.
"All eyes are now on the ECB meeting this Thursday," he added, as the governing council of the bank prepared for a monthly meeting in Frankfurt.
Analyst Thu Lan Nguyen from Commerzbank however, sounded a note of caution, saying in a research note: "The markets seem hopeful ... even though it is all but clear how these good intentions are going to be implemented."
Data from Spain dampened the optimism, reminding policymakers that the crisis continues to have a devastating effect on the real economy.
The Spanish recession deepened in the second quarter of the year, with the economy contracting 0.4 percent after shrinking 0.3 percent in the first three months of 2012, statistics institute INE said.
Further bad news came from the European Commission's Economic Sentiment Indicator showing that business and consumer confidence in Europe slid in July, with Germany suffering the biggest fall.
And in Greece, the leaders of Greece's conservative-led, three-party coalition government were due to meet again to agree on 11.6 billion euros ($14.2 billion) of spending cuts to keep the country in the euro.
Meanwhile, adding to the pressure on leaders to take action, a former heavyweight on the European political stage weighed in with a dire warning not to let the eurozone fall apart.
Former British prime minister Tony Blair wrote an opinion piece in German mass circulation daily Bild, saying: "To give up the euro now would be a catastrophe economically, not just politically."