European markets rose to the highest level in four weeks in early trading, with yields on Spain's 10-year bonds plummeting as investors showed relief over a rescue plan for the country's troubled banks.
But markets soon fell from their highs, while yields on Spanish bonds crept up again. Anxiety about the upcoming Greek election was foremost in investors minds, said analysts.
"The rally today is a reflection of the relief that investors are feeling," said Rami Sidani, the Dubai-based head of Middle East and North Africa investments at Schroder Investment Management.
"Spain is a big animal, its economy is much bigger than Greece, and the official filing for help should restore confidence in the banking system which has been suffering massive withdrawals."
In early trading, the Madrid Stock Exchange General Index rallied 3.6 per cent to 690.45 points. The United Kingdom's FTSE 100 Index jumped 1.3 per cent 5,505.79, while Germany's DAX Index gained 2 per cent to 6256.32. The euro rose to the highest level in three weeks, up 1 per cent to $1.26694.
But later in the day, much of these early gains had been wiped away. Investors are looking to Greece's upcoming national on Sunday, regarded as the next market catalyst, to help determine whether the debt-ridden country commits to its austerity measures or leaves the euro zone altogether.
"We might see markets come up and wait for an outcome," said Haissam Arabi, the chief executive at Gulfmena Investments in Dubai.
"If the conservatives win, the Greeks will stick with the bailout plan and austerity measures, which would mean Greece will not be pulling out of the euro - and the euro zone is still not a failure," he added. "The risk is when you have a complete shift in the political agenda."
In the Gulf, the Dubai Financial Market General Index advanced 1 per cent to close at 1,483.00, while the Abu Dhabi Securities Exchange General Index inched up 0.3 per cent to close at 2,463.38.
Saudi Arabia's Tadawul All-Share Index, the biggest and most liquid stock market in the Gulf, rose 0.6 per cent to 6,790.96.
Brent crude futures rose 1 per cent to trade at $100.490 per barrel.
"Gulf bourses will continue to have correlation to global market to the degree that it has on the oil price, which has jumped up and that's what's setting the tone for us, for the budgets for the region and governments being able to continue spending on infrastructure," said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi.
"When global growth is impacted and you see a large slowdown going through, it impacts demand for energy and that's where the link comes in."
In Asia, Hong Kong's Hang Seng Index jumped 2.4 per cent to 18,953.60. Japan's Nikkei Index and Korea's Topix Index rose 1.9 per cent and 1.7 per cent to 8,624.90 and 730.07 respectively.