Stock markets rise despite worries over Greece

Europe and US stock markets gained ground on Wednesday, despite continued concern at Greece's decision to hold a referendum on the eurozone bailout.

After a day of volatile trade, Germany's Dax index ended up 2.25%, while in New York the Dow added 1.5%.

It comes after two days of sharp falls on fears that the eurozone bailout agreement may unravel or prove insufficient.

Meanwhile Italy continues to face problems funding itself.

The Italian government has to pay 5.1% to borrow money from markets for just one year - the highest level since Italy joined the euro, and well above the 0.3% interest rate Germany has to pay.

There are fears that if Italy is shut out from the international markets altogether, like Greece, it will find it impossible to repay the hundreds of billions of euros in debts that fall due in the next 12 months.

Meanwhile, Greek Prime Minister George Papandreou is holding emergency talks with the French and German leaders.

On Monday, Mr Papandreou announced plans for a referendum on the bailout, which had been agreed last week. The move surprised eurozone leaders and the financial markets, sparking sharp falls on global stock markets.

Many Asian markets fell on Wednesday, with Japan's Nikkei 225 index ending down 2.2%, although a late rally in Hong Kong saw the Hang Seng index end up 1.9%.

Analysts fear that the potential departure of Greece from the eurozone club could spell the end of the euro project and spark a fresh economic downturn.

"Investors remain extremely wary," said Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers in London.

"The future of Europe, and with it, potentially the health of the global economy, continue to hang in the balance."

Adam Myers, senior currency strategist at Credit Agricole in London said: "After yesterday's sell-off, some bounce was expected, but we think there are a lot of hurdles for the euro to clear and given the risk events, we do not see it rallying much."

However, despite the market reaction and the concerns expressed by the eurozone leaders, the Greek prime minister held an emergency Cabinet meeting late on Tuesday at which he insisted that the referendum would go ahead.

The Greek government is set to face a confidence vote on Friday.