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LONDON (AFP) – The euro rose on Friday and stock markets firmed in response to massive purchases of eurozone debt by the ECB which pushed down borrowing rates for weak eurozone countries facing crisis.

Investors were on edge before the publication of crucial US economic data.

But a key factor in the markets was evidence on the bond market that the European Central Bank has ramped up purchases of debt issued by countries in trouble, mainly Ireland and Portugal.

The euro advanced to 1.3255 dollars in early trading here, from 1.3220 dollars late on Thursday in New York.

Yields on bonds issued by eurozone countries under strain, notably Portugal and Ireland, eased.

London's FTSE 100 stock index gained 0.05 percent, the German DAX 30 added just 0.02 percent and in Paris the CAC 40 climbed 0.53 percent.

The European Central Bank (ECB) had decided on Thursday to extend its exceptional bond-buying and liquidity-boosting operations to fight the debt crisis which has driven Greece and Ireland into rescues and threatens Portugal and Spain.

"It's a risk-on morning during the European session," said Forex.com analyst Kathleen Brooks, suggesting that investors were becoming more willing to buy assets that are deemed to carry higher risk -- like equities and the euro.

"The markets initially stuttered yesterday afternoon after ECB President (Jean-Claude) Trichet failed to firmly commit to provide policy support to the troubled peripheral nations during his monthly press conference."

The European Union and International Monetary Fund have already agreed to bail out Ireland and Greece with billions of euros, but markets suspect that Portugal and Spain could be next in line.

Brooks added: "Trichet clearly stated the ECB was not embarking on a period of quantitative easing.

"However, he did extend lending facilities at the one-week, one-month and three-month timeframes at fixed interest rates -- and said that its bond-buying programme would be 'commensurate' with market conditions."

"He also stated the need for governments within the eurozone to keep their fiscal houses in order, which suggested a reluctance on the part of the ECB to step in and directly prop up the troubled peripheral economies."

Trichet said on Friday: "I think that we have to see that we have a currency that is credible."

He told RTL radio in France: "There is no crisis for the euro as a currency.

"We have problems of financial instability that are the result of budget crises in certain European countries."

At Morgan Stanley bank, analysts commented that the ECB wanted to see "a major step-change in the economic governance of the euro area up to and including a fiscal federation before considering any policy action."

They said that the ECB's decision on Thursday on extending bond-buying had been reached by consensus but was not unanimous.

The analysts commented that investors should not become unduly optimistic. "The financial crisis needs to be resolved by governments ... The ECB can only be a temporary lender of last resort."

Later on Friday, investors will switch attention to the all-important non-farm payrolls data in the United States.

"Equity market sentiment remains positive and today's focus is the US jobs report where the expectation is for a further gain in private sector employment," said VTB Capital economist Neil MacKinnon.

Most Asian stocks mostly extended gains Friday from the previous day as a fresh batch of US economic figures added to the impression that recovery in the world's biggest economy is on track.

Sydney added 0.38 percent, Tokyo rose 0.10 percent and Seoul picked up 0.36 percent, while Hong Kong fell 0.55 percent and Shanghai eased 0.04 percent.

Comments from Beijing that the government would tighten monetary policy in 2011 suggested interest rate hikes are likely as the country battles inflation.

Dealers were given a strong cue by Wall Street, where the Dow rose 0.95 percent, the S&P 500 advanced 1.28 percent and the Nasdaq gained 1.17 percent.

Markets welcomed news that the National Association of Realtors had reported pending home sales jumped 10.4 percent in October, much more than expected, offering a glimmer of hope to the troubled US housing market.

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