LONDON (Dow Jones) -- European stocks rose sharply and the euro strengthened Tuesday, as investors were cheered by reports Greece was ready to accept further austerity measures in order to secure its next tranche of funding from the International Monetary Fund and European Union.

It is understood Greece will agree to a medium-term fiscal plan that includes cuts in benefits to civil servants, an extension to a public-sector pay freeze, a limit on new hiring and restrictions to its capital expenditure program. This represents a U-turn for German policy, which was pushing for a rescheduling of Greek bonds.
“The key issue for markets...is whether euro-zone policy makers will go down the road of debt restructuring/reprofiling at the same time as it agrees on a further package of support for Greece” said Dermot O’Leary, economist at Goodbody Stockbrokers.
“With Greece between a rock and a hard place, it has little choice but to cede to the demands of its lenders and bow to its judgment.”
As a result of the reports, investors were moving cautiously out of safe havens such as bonds and the Swiss franc and back into equities and the euro.
By 0740 GMT, the Stoxx Europe 600 index was up 1.4% to 280.67. London’s FTSE 100 was up 0.8% at 5988.23, returning from a three-day weekend. Frankfurt’s DAX gained 1.2% to 7247.60 and Paris’s CAC-40 increased 1.0% to 3983.41.
Corporate news was rather thin on the ground Tuesday. Chemicals and autos were leading the gains in Europe, while banks were boosted as sovereign debt woes subsided. The Stoxx Europe 600 banks index was up 1.0%.
Meanwhile the month-end sees a flurry of economic data Tuesday. The German unemployment rate is at 0755 GMT. Euro-zone consumer price index and unemployment rate are both at 0900 GMT. In addition, U.S. S&P/Case Shiller house prices are at 1300 GMT, U.S. Chicago PMI is at 1345 GMT and U.S. consumer confidence for May is at 1400 GMT.
Investors will inevitably be focusing on nonfarm payrolls data which is the highlight of the week. Disappointing economic data in May may not bode well for the results, due on Friday.
“Last month’s payrolls were a positive surprise, showing an increase of 244,000, but a disappointing run of jobless claims suggests that the momentum may not be maintained this time,” said economists at Investec, who predict a gain of 195,000 payrolls, in line with consensus expectations.
Earlier, Asian stock markets were mostly higher Tuesday, with the Nikkei lifted by an upbeat outlook from Japan’s manufacturers and a weaker yen, while regional solar plays gained after Germany said it would phase out nuclear power by 2022.
Japan’s Nikkei Stock Average climbed 2.0%, Australia’s S&P/ASX 200 added 0.9% and South Korea’s Kospi Composite gained 2.3%. Hong Kong’s Hang Seng Index advanced 1.5%, while China’s Shanghai Composite came off lows to add 1.4%.
Japanese stocks gained despite April industrial production coming in lower than expected, rising 1.0% from March, compared with expectations for a 2.9% rise, as the data also showed manufacturers polled expect their orders to rise 8.0% in May, and climb 7.7% in June.
Exporters got an additional boost as the yen weakened after Moody’s Investors Service said it was placing Japan’s Aa2 government ratings on review for a possible downgrade.
In foreign exchange markets, the euro hit three-week highs versus the dollar amid the reports of Germany changing its stance on Greece.
The euro was fetching $1.4408 from $1.4282 from late Toronto trade Monday. Meanwhile, the yen lost ground against major rivals after the Moody’s ratings announcement. The dollar was at Y81.66 from Y80.94 in late Toronto trade Monday, while the euro was at Y117.59 from Y115.53.
Elsewhere, at 0740 GMT, spot gold was at $1,539.0 per troy ounce, up $0.70 from its level at 2200 GMT Monday. July Nymex crude oil futures were at $101.85 a barrel, up $1.26 cents from its New York settlement Friday. June bunds were lower, as investors tentatively returned to equities. Bunds were down 0.46 at 125.23.
U.S. markets were closed on Monday for a public holiday. At 0745 GMT, the Dow Jones Industrial Average front month futures contract was up 0.7% at 12,516.0 and S&P 500 futures contract was up 0.8% at 1340.30.
Highlight: In foreign exchange markets, the euro hit three-week highs versus the dollar amid the reports of Germany changing its stance on Greece.