The European Central Bank will be the focus of attention this week as investors wait to see if it cuts interest rates to complement measures taken by European Union leaders to shore up banks and lower borrowing costs for Spain and Italy.
Europe's main stock markets closed sharply higher on Friday after surprisingly robust actions by the European leaders to tackle the euro zone crisis reassured investors.
London's benchmark FTSE 100 index ended the day up 1.4% at 5571.15 points, while in Frankfurt the DAX 30 rose 4.33% to 6416.28 points and Paris' CAC 40 soared 4.75% to 3196.65 points. Milan rocketed 6.59% and Madrid by 5.66%.
Most economists polled by Reuters expected the ECB to cut borrowing costs on Thursday (Friday NZ time) at its meeting which takes place against a gloomy economic backdrop.
Internal resistance to the central bank reviving its bond-buying programme remains high. The ECB has already loosened its collateral rules to make it easier for banks in Spain to access its fund.
United States stocks finished the first half of the year on a high as investors there also welcomed the news that the euro zone was a step closer to solving its 30-month-long debt crisis.
However, questions are now being asked about whether the rally late last week was strong enough to last more than a day.
The Standard and Poor's 500 and the Nasdaq posted their best daily percentage gains since December on Friday - after the agreement by European leaders.
Under pressure to prevent a catastrophic break-up of the single currency, euro zone leaders agreed to let their rescue fund inject aid directly into stricken banks starting next year and to intervene in bond markets to support troubled member states.
They also pledged to create a single banking supervisor for euro zone banks based around the ECB.
The decision was described as a landmark step towards a European banking union that could help shore up struggling member Spain.
Oil prices also surged in heavy trading after the announcement.
Brent crude oil futures rose more than $US6 ($NZ7.50) a barrel to near $US98 ($NZ122) while US crude jumped by more than $US7 to settle below $US85 a barrel - the fourth largest daily gains in dollar terms since the contracts were launched.
On June 20, the Federal Reserve extended its "Operation Twist" programme to sell short-term securities and buy longer-term ones to keep borrowing costs down.
Investors were disappointed when US Federal Reserve chairman Ben Bernanke gave few hints that further monetary stimulus was imminent - dashing hopes of cheap money in the equities market.
Reuters reported yesterday that European bond yields would be closely watched this week. Madrid would auction three-year, four-year and 10-year bonds at a primary auction on Thursday in another big test for Spanish yields that are still just below 7%.
France would sell between 7 billion ($NZ11 billion) and 8 billion ($NZ12.6 billion) in long-term bonds, also on Thursday.
Data out this week includes the Institute for Supply Management's US manufacturing index construction spending tomorrow, followed by factory orders and June car sales..
After a holiday on Wednesday, investors will face a blitz of economic indicators with weekly jobless claims and mortgage data, private-sector payrolls reports and the ISM's US services sector index.
On Friday, the Government's June non-farm payrolls report will be released. Economists have forecast a gain of 90,000 jobs, with the US unemployment rate steady at 8.2%.
