European Stocks Recover as Fed Defends Stimulus Plans

European stocks recovered in the opening minutes of trade as US Federal Reserve chief Ben Bernanke defended the central bank's stimulus plans despite lingering Italian political concerns.

The FTSEurofirst 300 index, tracking the region's blue-chip stocks, gained 0.1 percent to 1,151.38.

The UK's FTSE 100 rose 0.3 percent while Germany's DAX climbed 0.6 percent. Spain's IBEX amd France's CAC-40 were up 0.5 percent each.

Italy's FTSE MIB advanced 0.7 percent

The single currency showed modest strength against the dollar, trading at about $1.30.

The disastrous Italian elections that have triggered a political crisis had hammered global markets in the previous session.

Italy will face a debt test during the day as the country's Treasury plans to go ahead with its 5 and 10-year bonds auction. Yields on the country's 10-year bonds had surged to 4.87 percent on political concerns.

Analysts point out that the scattered poll results are a clear indication that Italians reject the eurozone's austerity schemes aimed at economic recovery. The outcome has prompted European Commission President Jose Manuel Barroso to warn the bloc's leaders to not yield to populist measures.

As traders pondered on the direction of eurozone economy, news from across the Atlantic came to the rescue. Bernanke, in his congressional testimony, indicated his strong support for the central bank's $85bn bond purchase scheme. Bernanke said that the third quantitative easing (QE3) should be extended until the labour markets achieve considerable improvement.

Most Asian markets had ended higher earlier, buoyed by Bernanke's efforts to defend the stimulus plans, although Japanese stocks remained weak on the yen's movements.

The Nikkei ended 1.27 percent lower to 11253.97 while South Korea's KOSPI gained 0.20 percent to 2004.04. Australia's S&P/ASX 200 added 0.66 percent to 5036.60.

In China, the Shanghai Composite Index advanced 0.87 percent to 2313.22. Hong Kong's Hang Seng traded 0.32 percent higher to 22591.98 towards close.

Bernanke is set to give his semi-annual testimony to the House Committee later in the day, where he is expected to continue the dovish tone.

But the Fed's concern-easing rhetoric comes amid fears of another Washington standoff on the looming automatic spending cuts issue. Bernanke himself had warned that a failure to settle the charged issue of spending cuts could prove detrimental to the economy.

In the UK, the updated fourth quarter GDP data is set for release during the day. Analysts expect the figures to remain unchanged from the preliminary estimate of 0.3 percent contraction.

Japanese markets remained weak as the yen returned from its record low levels as traders speculated on the Italian election results. The Japanese currency traded at 91.75 per dollar after having topped the 94 mark earlier this week.