European stocks rally on hopes of Slovakia vote switch

European stocks rose and the euro hit a three-week dollar high on Wednesday as markets expected Slovakia to eventually back expansion of a eurozone bailout fund despite lawmakers voting against it.

Traders shrugged off disappointing results from aluminium producer Alcoa, which kicked off the US earnings season overnight.

After falling at the start of trading Wednesday, Europe's main stock markets recorded solid gains approaching the half-way mark.

In London, the FTSE 100 rose 0.52 percent to 5,423.96, Frankfurt's DAX 30 index rallied 1.68 percent to 5,963.83 points and the Paris CAC 40 jumped 1.44 percent to 3,198.88 points.

In foreign exchange deals, the euro surged to $1.3816, the highest level since mid-September and compared with $1.3660 in New York on Tuesday. The dollar fell to 76.47 yen from 76.66 yen.

German Chancellor Angela Merkel on Wednesday predicted a eurozone bailout fund would be ratified this month despite its initial rejection by Slovakia.

Speaking at a business forum in Ho Chi Minh City in southern Vietnam, Merkel added that the euro would always be a "strong currency."

Slovakia's parliament on Tuesday blocked a plan to expand the European Financial Stability Facility (EFSF), dealing another blow to the eurozone's leaders as they look for a solution to the bloc's debt and banking crisis.

It effectively stops the expansion of the 440-billion-euro ($600 billion) bailout fund, despite warnings from European Central Bank chief Jean-Claude Trichet that the world financial system faces systemic dangers.

Slovakia is the last of the 17 eurozone members to vote on the revamp which must be approved by all.

The vote also toppled the government of Prime Minister Iveta Radicova who said she would try and hold a second vote this week, looking for opposition support to get the measure through.

"It is assumed that the EFSF will be approved by the end of the week as Slovakia plans another vote, minimising losses" on stock markets, said Simon Furlong, a trader at Spreadex.

The eurozone meanwhile needs a rescue fund of about two trillion euros -- almost five times its current size -- to overcome its crisis, said former British prime minister Gordon Brown.

"The European stability fund is only (about) 400 billion euros ... most people like me believe the fund that (what) is needed to withstand the pressure is more in the order of two trillion euros ($2.7 trillion)," he told a Seoul forum Wednesday.

"Therefore we have to find solutions to that problem ... even at a time when European countries are not willing to vote for a bigger rescue fund."

Brown, who as finance minister kept his country out of the eurozone, said Britain had refused to sign up due to a lack of "proper measures ... to avoid the crisis we now have."

Asian shares closed mixed on Wednesday, with Tokyo losing 0.40 percent and Seoul rising 0.81 percent.

"Markets will trade with a cautious tone keeping one eye on earnings and the other on developments in the eurozone," said Mitul Kotecha, strategist at Credit Agricole.

US stocks drifted to a mixed finish on Tuesday ahead of Alcoa's earnings. After the closing bell, the aluminium giant said its third-quarter net earnings were triple a year earlier but down from the previous quarter as metal prices fell and the European economy stumbled.