Global equities rose and the dollar steadied against the euro on Thursday amid renewed confidence in the economy after some encouraging data from the United States, the world's largest economy.

London's benchmark FTSE 100 index closed 1.19 percent higher at 5,494.16 points, the Paris CAC 40 bounced up 1.22 percent to 3722.15 points and the Frankfurt Dax climbed 0.93 percent to finish at 6,221.52 points.

The euro edged up to 1.2727 dollars compared with 1.2718 late on Wednesday.

Markets were lifted after US government data showed the number of Americans filing new claims for jobless benefits fell faster than expected last week.

Claims for the week to September 4 fell to 451,000, down 27,000 from the previous week's revised figure.

The US trade deficit also dropped more than expected in July as exports reached their highest level in two years, official data showed.

This came after the Federal Reserve on Wednesday said the US economy continued growing in July and August albeit "with widespread signs of a deceleration," calming fears of a possible return to recession.

Improved sentiment in Europe also helped after a successful sovereign bond issue by debt-saddled Ireland.

"We have started to see some investors return to the banks, after weakness earlier this week triggered by concerns over exposures to sovereign debt," said Joshua Raymond, an analyst at trading firm City Index.

Other European markets were equally buoyant. Amsterdam's AEX index rose 0.95 percent, Madrid's Ibex-35 jumped 1.20 percent and Milan's FTSE Mib advanced 1.35 percent.

Among the big winners of the trading session were banks.

Shares in British bank Barclays rose 4.98 percent to 323.35 pence and Germany's second-biggest lender Commerzbank rose 2.63 percent to 6.45 euros after its boss played down the potential fallout from new banking regulation.

There were more modest gains on Asian stock markets, with Tokyo's Nikkei index closing up 0.82 percent at 9,098.39 points. Sydney gained 0.99 percent and Hong Kong rose 0.37 percent.

Tokyo's gains were limited by persistent concerns about the strength of the yen. The Japanese currency was trading at 83.79 yen to the dollar.

Japan on Thursday raised the prospect of intervention in the currency markets as leaders faced mounting calls to act on the surging yen.

Finance Minister Yoshihiko Noda said the government was examining ways that it could sell down the Japanese unit, which poses a threat to the country's key export sector.

"We are conducting various simulations," Noda said during a parliamentary session, according to Dow Jones Newswires, and repeated his pledge to take "decisive steps" in the currency market when it becomes necessary.

After weeks of attempting to talk the currency lower with repeated verbal warnings that have had decreasing impact, the government's tone has hardened in the run up to next week's ruling party leadership elections.

The yen's appreciation has put many Japanese exporters at a disadvantage against foreign rivals as it erodes their repatriated earnings.