LONDON—European stock markets staged a sharp rebound, ending a four-day losing streak Thursday after European Central Bank President Mario Draghi pledged to do whatever is needed within the institution's mandate to save the euro.
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The Stoxx Europe 600 index jumped 2.5% to 256.58, after swinging between small gains and losses ahead of Draghi's comments. The gain marked the best daily performance for the index in almost a month.
The Spanish market posted its best daily performance since May 2010, with the IBEX 35 index jumping 6.1% to 6,368.80. Banco Santander SA surged 11% as investors shrugged off a 93% drop in second-quarter profit. Santander profit sinks 93% on property provisions.
Italy's FTSE MIB index also shot higher, soaring 5.6% to 13,210.04, after closing at the lowest level on record earlier in the week. Banca Monte dei Paschi di Siena SpA surged 9% and UniCredit SpA rallied 9.2%.
"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough," Mr. Draghi said.
"He hasn't really offered anything new other than reiterating that he supports the shared currency," said Victoria Clarke, economist at Investec Securities. "I would be more cautious. A lot of things wouldn't be within the mandate and Draghi has made clear they don't want to supplement what governments can do."
Banks, however, cheered the comments, with heavyweight HSBC Holdings PLC rising 1.6% and Intesa Sanpaolo SpA surging 8.8%.
The ECB president said that if high sovereign yields hurt the transmission channels for monetary policy, keeping risk premiums under control would come within the bank's mandate.
Nicholas Spiro, managing director at Spiro Sovereign Strategy, remained cautious and said "we have been here before."
"German resistance to direct and indirect policy measures on the part of the ECB to lower Spanish and Italian bond yields has risen over the past several months," he said. "It remains to be seen whether Berlin is willing to turn a blind eye to more forceful policy measures to lower Spanish and Italian yields should market conditions deteriorate further."
Even so, pressure significantly came off elevated yields in Spain and Italy, where borrowing costs had risen sharply earlier in the week on concerns about the countries' sovereign debt levels.
In the secondary market, yields on 10-year Italian government bonds fell 42 basis points to 6.04%, according to electronic trading platform Tradeweb. In addition, the government sold the maximum targeted 2.5 billion euros ($3.03 billion) of zero-coupon notes, although at higher borrowing costs than at a previous auction.
The yield of 4.86% on notes maturing in May 2014 was, however, below secondary-market levels at the time of sale, according to Tradeweb.
Yields on 10-year Spanish government bonds plunged 45 basis points to 6.88%, according to Tradeweb.
In Madrid, heavyweight Telefonica SA erased an earlier loss of as much as 6% and added 3.4%. The telecommunications group released earnings a day ahead of schedule late Wednesday, saying it would scrap the payment of remaining dividends and cancel share buybacks for this year, as profit dropped 14% in the second quarter.
In the U.K., banks moved higher, supporting a 1.4% rise for the FTSE 100 index to 5,573.16. Standard Chartered PLC added 1.7% and Barclays PLC rose 2%.
Unilever PLC further supported the U.K. index, jumping 5.4%, as first-half revenue rose, although the consumer-products firm warned of a worsening global economy.
Bucking the trend, oil group Royal Dutch Shell PLC lost 2.5% after adjusted second-quarter profit dropped 13%, dragged down by lower energy prices.
U.S. data were also in focus, as initial jobless claims dropped by 35,000 to a seasonally adjusted 353,000, which was a larger drop than expected. U.S.
In addition, orders for U.S. durable goods rose 1.6% in June, also exceeding expectations.
U.S. stocks were sharply higher on Wall Street.
The French CAC 40 index jumped 4.1% to 3,207.12, as banks moved higher. Credit Agricole SA surged 8.5%, Société Générale SA rallied 8.9% and BNP Paribas SA jumped 8.6%.
Peugeot SA lost 2%, after Moody's Investors Service downgraded the car maker's rating.
Alcatel-Lucent shares fell 6.1%, as it announced plans to cut costs by €750 billion by the end of 2013. The telecom-equipment producer swung to a second-quarter loss.
In Germany, Siemens AG moved down 1.2%, as it missed analysts' expectations for the fiscal third quarter.
But Germany's DAX 30 index tracked the rest of Europe higher on Draghi-inspired gains, up 2.8% to 6,582.96, as Deutsche Bank AG advanced 5% and Allianz SE jumped 4.5%.
Write to Sara Sjolin at sara.sjolin@marketwatch.com
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