LONDON - European stock markets and the euro advanced on Wednesday after Spain unveiled new spending cuts which helped offset worries about the continent's debt crisis. Britain's financial markets meanwhile gave a lukewarm response to the country's first coalition government since World War II.

Solid German economic growth figures also helped fuel the rally, particularly in Frankfurt, where the DAX was up 102.85 points, or 1.7 percent, at 6,140.56.

The CAC-40 in France was 24.15 points, or 0.7 percent, higher at 3,717.35.

Better than expected growth in Germany also helped relieve pressure on the euro - by early afternoon London time, the euro was trading 0.3 percent higher at $1.2677.

However, the euro's medium-term fortunes are likely to depend on the debt crisis that has already seen Greece bailed out by its partners in the eurozone and the International Monetary Fund, and forced European policymakers to unveil a 750 billion euro financial support package for the single currency zone.

The news that Spain aims to cut its budget deficit by a further 1.5 percentage point to 6 percent of the country's gross domestic product in 2012 has also helped calm jittery markets.

Spain's Prime Minister Jose Luis Rodriguez Zapatero outlined a raft of measures including cuts in public sector pay.

"Today's Spanish budget is a positive step towards a return to fiscal health in the eurozone," said Jane Foley, research director at Forex.com.

Policymakers across the eurozone face a difficult balancing act over the coming months - sustaining growth at a time when big budgetary cutbacks are being enacted.

Figures from Eurostat, the EU's statistics office, did little to encourage hope that the eurozone economic recovery is gathering a head of steam - the 0.2 percent quarterly increase across the 16-country bloc hid big disparities.

Associated Press