World markets shake off fears

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NEW YORK (CNNMoney) -- World markets rebounded Wednesday, as a report on eurozone economic growth revealed no further weakness, helping abate concerns about the European debt crisis and teetering banks.

Eurostat, the statistical office of the European Union, left unchanged its estimate of first-quarter gross domestic product, the broadest measure of the economy. The agency said the 17 nations that use the euro saw a 0.1% decline in GDP in the quarter, while the 27 nations in the European Union had a combined 0.1% increase.

European stocks rallied on the figures, which some economists had predicted would be lowered. The data were also an improvement from the fourth quarter's decline of 0.3% in both the eurozone and the EU.

The DAX (DAX) in Germany closed 2.1% higher and the CAC 40 (CAC40) in France was up 2.2%. London's FTSE (UKX) soared 2.4%, in its first session following a two-day closure to celebrate the Royal Jubilee and a bank holiday.

The European Central Bank left interest rates unchanged at its governing council meeting Wednesday. However, investors will be listening to the news conference with ECB President Mario Draghi for signs on a coordinated effort to deal with Europe's debt problems.

In particular, policymakers are dealing with a Spanish banking system on the edge of collapse and Greece edging closer to a possible exit from the euro.

"Things were looking so bad by the end of last week that we are now slowly starting to price the next round of intervention on both sides of Atlantic," wrote Deutsche Bank analysts Jim Reid and Colin Tan.

Earlier Wednesday, the European Union announced a proposal for a continent-wide banking union that would deal with future banking crises rather than leave them in the hands of already struggling national governments.

In the latest slap to the European banking system, Moody's downgraded several German and Austrian banks. Investec analysts Elisabeth Afseth and Brian Barry wrote in a market report that the banks are hurt by "euro-area crisis exposure."

Asian markets were mostly higher at the close. The Shanghai Composite (SHCOMP) slipped 0.1%, but the Hang Seng (HSI) in Hong Kong jumped 1.4% and Japan's Nikkei (N225) rose 1.8%.

Anticipation of positive comments from the ECB also drove a rally on Wall Street. The Dow Jones (INDU) industrial average jumped 1.8%, the S&P 500 (SPX) rose 1.9% and the Nasdaq (COMP) surged 2.1%.

CNNMoney's Fear & Greed Index remained in extreme fear territory.