NEW YORK SHARES

Stocks around the world rallied on Friday despite uncertainty over Greece as investors appeared to bet on fresh stimulus from the United States and Europe (Chicago Options: ^REURUSD - news) to boost growth and fight the eurozone crisis.

Asian markets started the rally, with European markets following and US stocks extending Thursday's gains in early trading.

London's benchmark FTSE 100 (Euronext: VFTSE.NX - news) index closed up 0.22 percent to 5,478.81 points, while in Frankfurt the DAX 30 (Xetra: ^GDAXI - news) rose 1.48 percent to 6,229.41 points, and in Paris the CAC 40 (Paris: ^FCHI - news) climbed 1.82 percent to 3,087.62 points.

Madrid gained 0.34 percent and Milan jumped 2.34 percent after the Italian government adopted growth measures and plans to sell off some state-held companies and property.

In foreign exchange deals, the euro drifted up to $1.2635 from $1.2630 late Thursday in New York (Frankfurt: A0DKRK - news) . Sterling rose against the euro and dollar in afternoon trading after initially dropping following the stimulus news.

The dollar slid against the yen, buying 78.68 yen instead of 79.34 late on Thursday.

"The prospect of co-ordinated central bank intervention from central banks next week in the event of turmoil caused by the result of this weekend's Greek elections has given equity markets a boost today, and calmed some rather frayed investor nerves," said Michael Hewson, senior market analyst at CMC Markets.

"The Bank of England took a similar approach by announcing two new stimulus packages to aid worsening economic fears and to give long term supports to UK banks allowing them to borrow loans below market rates," added Khurram Ali, a broker at Valbury Capital.

European Central Bank chief Mario Draghi fuelled speculation of an imminent rate cut or other measures, warning Friday of "serious downside risks" to the euro area economy while inflation saying was no threat.

However, with Spain's borrowing costs pushing to record highs despite a 100 billion-euro bank bailout, traders remain on edge.

The IMF said Friday that Spain will likely miss its budget-cutting deficit target for 2012 and it pushed Madrid to adopt broad reforms as it grabs a rescue line for stricken banks.

Asian markets mostly rose on Friday and US stocks forged higher in midday trade.

At around 1600 GMT, the Dow Jones Industrial Average was up 0.57 percent to 12,724.52 points, the broad-market S&P 500 (SNP: ^GSPC - news) climbed 0.64 percent to 1,337.64 points and the tech-rich Nasdaq Composite (Nasdaq: ^IXIC - news) gained 0.79 percent to 2,858.74 points.

"Place your bets. Yesterday's and today's trading is all about positioning ahead of Sunday's elections in Greece and next week's Federal Reserve policy meeting," said Dick Green at Briefing.com.

Green said stocks rallied "because traders are betting that European governments will take action after the election to prevent any adverse credit market impact from the possibility of Greece leaving the eurozone.

The gains followed those on Thursday, as poor jobs data sparked speculation that the US central bank would start a third round of stimulus known as quantitative easing in a bid to kickstart the world's biggest economy.

"Sentiment seemed to strengthen on hopes that underwhelming data might compel the Fed to implement another round of quantitative easing when they meet next week," said Briefing.com.

In Britain finance chief George Osborne and Bank of England governor Mervyn King said they would flood banks with billions of pounds in a bid to jump-start lending to households and businesses and fend off a potential storm from Europe.

But while investors absorbed the possibility of fresh cash in the system Europe's troubles tempered sentiment.

The IMF said in a report Friday that as Spain taps a eurozone loan of up to 100 billion euros to restructure the banks, it must also implement "comprehensive" reforms including raising value added tax immediately.

On Thursday the interest rate on Spanish 10-year government bonds soared to 6.9667 percent, the highest since the birth of the single currency in 1999, and close to the danger-zone 7.0 percent considered unsustainable to service debts.

The jump came after Moody's on Wednesday slashed Spain's sovereign debt rating by three notches, saying the bank bailout would put extra strain on the country's already weak finances.

The rate of return for investors on Spanish 10-year bonds slid to 6.838 percent on Friday, but the risk premium -- the difference in the rate between Spanish and safe-haven German 10-year bonds -- hit a new euro-era record of 5.54 percentage points as the yield on German bonds fell more.