European shares rebounded Wednesday on news that EU nations were assembling plans to recapitalise banks and avoid contagion from the eurozone debt crisis.

The euro was off recent lows but remained pressured by Greece's deficit troubles, traders said.

London's FTSE 100 index of top shares won 2.0 percent to 5,043.26 points, as investors shrugged off official data showing that the British economy grew by a weaker-than-expected 0.1 percent in the second quarter.

Frankfurt's DAX 30 gained 3.68 percent to 5,408.56 points and the Paris CAC 40 added climbed 3.29 percent to 2,944.28 in European midday trade.

Milan increased by 1.59 percent despite a three-notch credit ratings downgrade by Moody's, which cited Italy's increasing gloomy prospects for growth and financing of long-term debt.

European markets had plunged Tuesday on concerns that the eurozone crisis could snare more banks after Franco-Belgian lender Dexia sought help amid worries over its liquidity and its heavy exposure to debt-plagued Greece.

"The hopes that finance ministers are finally examining ways to recapitalise euro area banks is certainly the main driver" behind stocks rebounding, Daiwa economist Chris Scicluna told AFP.

"Such action is critical in light of events at Dexia, in order to avoid contagion of funding and solvency concerns to other European banks, the risks of which appear yet greater still in light of the Italian triple-notch downgrade by Moody's."

Shares in Dexia, which had plunged 22 percent on Tuesday, rose 6.45 percent to stand at 1.073 euros in Wednesday trade.

EU nations are building a "co-ordinated" plan to recapitalise banks to avoid contagion from the debt crisis which has forced the dismantling of Dexia, the European Commission said Tuesday.

"There is an increasingly shared view that we need a concerted, co-ordinated approach in Europe while many of the elements are done in the member states", the EU's Economic Affairs Commissioner Olli Rehn told the Financial Times.

"There is a sense of urgency among ministers and we need to move on," he added.

The news came after the French and Belgian governments stepped in on Tuesday to guarantee the financing of Dexia, which is to be broken up.

"An impressive bounce higher (for stocks) on talk that EU finance ministers are... talking about bank recapitalisations is a welcome development," said CMC Markets analyst Michael Hewson.

"But unless it is followed up by some significant action it is likely to soon give way to downside pressure once more.

"The rally higher does suggest that the buying interest is there and it is policymakers disjointed and uncoordinated policy responses that is keeping investors on the sidelines," he added.

Asian shares closed mixed on Wednesday as Wall Street's overnight rally was offset by lingering fears that Greece's debt crisis would become contagious.

The euro meanwhile came under pressure on Wednesday after Italy's large downgrade, which has stoked worries over eurozone debt and the impact of a possible Greek default on the global economy.

The European single currency fell to $1.3291 in London trade from $1.3338 on Tuesday, when the euro hit a near nine-month low against the US unit and 10-year trough versus the yen.

"We have been repeatedly disappointed by the sluggish, grudging and piecemeal approach of euro area policymakers to dealing with the crisis," added Daiwa economist Scicluna.

"And so, sadly, I fear that Rehn's words will fail to matched by sufficiently ambitious deeds and markets will prove to be disappointed once again."

The dollar dropped to 76.69 yen from 76.82 yen on Tuesday.