"The acquisition will strengthen the presence of Lloyds on the UK market," said Ivanka Stefanova, a credit analyst with UniCredit in Munich.
In Frankfurt, the German DAX was up nearly 1 percent, lifted in part by shares of Deutsche Boerse AG, which rose nearly 11 percent, as well as automaker Volkswagen AG, whom investors believe will likely be completely taken over by Porsche SE in the coming weeks. That pushed shares of Europe's biggest automaker up more than 10.1 percent in trading.
Deutsche Bank AG, Germany's biggest bank by assets, saw its shares rise more than 4 percent to euro52.44.
Analysts said the gains in European markets were largely the result of the announcement by the European Central Bank, Federal Reserve and central banks in Switzerland, Japan, Britain and Canada, to provide as much as $180 billion in extra dollars to cash-starved banks.
In a statement, the Fed said it had authorized the expansion of swap lines, or reciprocal currency arrangements, with the other central banks, including amounts up to $110 billion by the ECB and up to $27 million by the Swiss National Bank.
The Fed also said new swap facilities had been authorized with the Bank of Japan for as much as $60 billion; $40 billion for the Bank of England and $10 billion for the Bank of Canada.
In Paris, the CAC 40 was up nearly 1.1 percent, led in part by bank Dexia, shares of which were up almost 10 percent, as well as strong ganis by banks Credit Agricle and BNP Paribas, both of which surged 5.9 percent and 5.8 percent higher.
Gains were also seen on exchanges in Madrid, where the SMSI was up 1.4 percent and in Stockholm, where stocks rose nearly 1 percent.
Elsewhere, Russia's main stock exchanges remained mostly closed Thursday, a day after regulators suspended trading amid a dizzying plummet in share prices. The MICEX resumed limited trading; the RTS was set to reopen Friday.
ITAR-Tass and Interfax quoted Russian Finance Minister Alexei Kudrin also as saying that Russia's three largest banks will be getting an extra 60 billion rubles ($2.36 billion) to help bolster the financial markets.
Across Asia, stocks fell but managed to erase most of the sharp losses that arose after Lehman Brothers Holdings Inc. filed for bankruptcy protection and insurer American International Group Inc. was bailed out by the U.S. government.
Hong Kong's Hang Seng Index, which sank more than 7 percent at one point, closed virtually flat at 17,632 points. Tokyo's Nikkei 225 index, also paring early losses, ended down 2.2 percent to 11,489.30, a three-year low.
In other markets, Australia's S&P/ASX200 index fell 2.4 percent, South Korea's Kospi lost 2.3 percent, and China's Shanghai benchmark dropped 1.7 percent after earlier falling 7 percent.
Investors were shaken by the Federal Reserve's $85 billion emergency loan to AIG, the huge U.S. insurer that lost billions in the risky business of insuring against bond defaults and became the latest victim of the historic financial turmoil that's engulfed Wall Street over the last year.
The crisis, a result of problems with souring mortgage debt and restricted credit, has already brought down Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns. The two independent investment banks left standing - Morgan Stanley and Goldman Sachs Group - remained under scrutiny.
"It's a complete collapse of confidence," said Francis Lun, general manager of Fulbright Securities Ltd in Hong Kong. "The financial crisis in the U.S. is hitting everyone, everyone is running for cover. If the largest insurance company can fail, than no one is safe."
Oil had jumped overnight as investors fled equities to crude as a short-term safe haven amid global market unrest. After opening lower Thursday, light, sweet crude for October delivery was up 69 cents to $97.85 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe.
The euro surged higher to $1.4498 in European trading from the $1.4376 it bought in New York late Wednesday.
The British pound edged higher to $1.8217 from $1.8245, while the dollar bought 104.44 Japanese yen compared with 105.24 yen.
AP Business Writers Catrin Stewart in Moscow and Jeremiah Marquez in Hong Kong and Associated Press writers Tomoko Hosaka in Tokyo and Rohan Sullivan in Sydney contributed to this report.