LONDON (AFP) – Asian and European equity markets punched back sharply on Thursday, mirroring Wall Street gains, on a dramatic drop in crude oil prices and receding fears of a US financial crisis.

Investors will focus later on a crucial round of banking results in the United States amid lingering concerns about fresh fall-out from the collapsed US subprime home loan market.

New York rallied sharply on Wednesday, triggered by better-than-expected second-quarter earnings from chip-maker Intel and California-based bank Wells Fargo — which gave a much-needed boost to the troubled banking sector.

Nerves were also soothed by tumbling crude oil prices, which have slumped by more than ten dollars over the past two days. Lower oil prices cut energy costs for companies and tend to boost share prices.

In early morning European deals, London rallied 1.74 percent, Frankfurt clawed back 1.71 percent and Paris added 1.70 percent.

In Asia, Tokyo climbed by one percent, Hong Kong leapt 2.4 percent, Sydney won 0.6 percent and Shanghai was up 0.79 percent.

Wall Street had staged a strong rebound on Wednesday amid a surge in battered bank stocks and troubled mortgage giants Fannie Mae and Freddie Mac, with the Dow Jones Industrial Average vaulting 2.52 percent.

The banking sector led the charge, with an index of banking shares jumping more than 16 percent after Wells Fargo reported a stronger-than-expected profit of 1.8 billion dollars.

“The rise in overall financials reverses five days of sharp falls that accelerated in the first two days of this week,” said ABN Amro analyst Melinda Smith.

“Significant enough to calm nerves but still leaves us a long way from thinking the worst has past given the ongoing concerns over inflation, growth and financial markets.

“Therefore sentiment still remains fragile.”

Major US investment banks JPMorgan and Merrill Lynch are set to reveal their balance sheets later Thursday. Citigroup, which has been hit hard by the subprime loan crisis, reports earnings on Friday.

Other results due Thursday include Bank of New York, Capital One and Microsoft.

“Reassuring news from Wells Fargo provided a boost to the equity market yesterday so given the quiet data calendar much attention will be on more second quarter results released today,” added Calyon analyst Daragh Maher.

European stock markets had closed mainly higher on Wednesday, steadying after heavy losses earlier in the week as investors sought a handle on problems in the US financial services sector.

A sharp drop in oil prices allowed some careful bargain hunting in the hardest hit shares after a painful global equities sell-off Tuesday.

Analysts said markets were also boosted after a move by the Securities and Exchange Commission (SEC) to limit certain types of “short sales” in financial shares that aim to profit from a market decline.

“The SEC decision to crack down … looks to have had an immediate impact on the US equity markets,” said economist Derek Halpenny at The Bank of Tokyo-Mitsubishi UFJ in London.

“Better than expected earnings results may have been a factor but the scale of the move suggests the SEC announcement has played an important role in this equity market rally.”