NEW YORK -Revived hopes for a resolution to Greece's debt crisis sent the euro higher Friday, as investors bet finance ministers would wrangle a bailout in weekend meetings.
But risks abound that the debt contagion may spread, as underscored by a rating agency warning about the zone's third-largest economy on Friday.
The euro pared some gains after Moody's Investors Service put Italy's credit ratings on review for a downgrade.
Speculation that heavily indebted Greece could receive 120 billion euros before it runs out of cash this summer offered a measure of comfort to investors who were rocked by exceptional market volatility this week.
Worries that a Greek default could threaten other euro zone members were heightened in late trading after Moody's Investors Service said it may cut Italy's credit rating.
"What sparked the market today was some relief from European leaders that they'll do what they can to avoid a credit crisis," said King Lip, investment officer at Baker Avenue Asset Management in San Francisco.
However, risk aversion remains at elevated levels, signaled by a drop in oil prices, a jump in gold and resilience in the Swiss franc, traditionally seen as a safe-haven currency.
The appetite for low-risk government bonds also rose on nagging doubts whether backing from German Chancellor Angela Merkel and French President Nicolas Sarkozy will speed up aid for Greece. Bonds pared initial losses that had been spurred by encouraging remarks on Greece from the French and German leaders and ended flat on the day.
Merkel said on Friday that Germany and France wanted a quick solution to the impasse over a new aid package for Greece, while Sarkozy said "there was no time to lose."
In Greece, Prime Minister George Papandreou appointed a new finance minister, Evangelos Venizelos, in an effort to push through harsh economic reforms. Venizelos said he will seek approval from his euro zone counterparts on Sunday to agree to
some changes of a mid-term austerity plan that the parliament is expected to pass.
Despite Moody's ratings review of Italy, the euro finished up 0.7 percent for the day at $1.4306, trimming its weekly decline to 0.2 percent.
On Wall Street, the Dow Jones industrial average was up 42.84 points, or 0.36 percent, at 12,004.36. The Standard & Poor's 500 Index was up 3.86 points, or 0.30 percent, at 1,271.50. Bu the Nasdaq Composite Index was down 7.22 points, or 0.28 percent, at 2,616.48.
The S&P 500 and Dow snapped six-week losing streaks, although the S&P 500 was almost 7 percent below a three-year high reached on May 2.
The FTSEurofirst 300 index of top European shares edged up 0.2 percent to end at 1,086.73. But the pan-European index still ended down for the week, marking a seven-week losing streak in which it has shed 4.8 percent.
The MSCI world equity index rose 0.4 percent, rebounding from a three-month low. It was on track to end the week lower and has moved into negative territory for the year.
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