European stock markets rallied on Tuesday as traders returned to their desks after the Easter holiday to digest the latest developments on the Cyprus debt crisis, dealers said.
London's FTSE 100 index of leading companies jumped 1.15 percent to 6,485.46 points in early afternoon deals in the British capital.
Frankfurt's DAX 30 gained 1.19 percent to 7,888.95 points and in Paris the CAC 40 won 0.95 percent to 3,766.95. Madrid grew 0.65 percent and Milan climbed 0.84 percent.
In foreign exchange trade, the euro eased to $1.2838 from $1.2847 late in New York on Monday. Gold prices edged down to $1,597.75 an ounce from $1,598.25.
All major European markets were closed on Friday and Monday for the long holiday weekend.
Trade was buoyant despite the resignation of Cypriot Finance Minister Michalis Sarris who cited his tenure as chairman of Laiki Bank -- whose failure was a major contributor to the island's near financial meltdown -- as a reason.
Earlier on Tuesday, the government launched a judicial probe into how the island was pushed to the verge of bankruptcy before having to agree a crippling eurozone bailout.
But in more positive news, the central bank announced that it was raising the limit on business transactions from 5,000 euros to 25,000 and was allowing people to issue cheques of up to 9,000 euros.
In addition, the troika -- the European Central Bank, the European Union and the International Monetary Fund -- indicated readiness to give Cyprus more time to bring its budget into surplus, according to a draft loan agreement obtained by AFP.
The draft sets 2017 instead of 2016 as the target year for Cyprus to achieve a 4.0-percent primary budget surplus.
"Only a week after the Cypriot rescue package was signed, the troika has already eased the terms for the country's financial aid package," said Rabobank analyst Jane Foley.
"This easing comes in the form of an additional year to get public finances in order.
"After the turmoil caused by the Cypriot banking crisis, the country now has to meet a 4.0-percent primary budget surplus in 2017, giving the country a full year extra to spread the burden of austerity measures."
Cyprus was rescued with a 10-billion-euro ($13-billion) EU-IMF bailout last week.
In London trade, mobile phone giant Vodafone saw its share price surge on the back of market rumours over a potential break-up bid from Verizon Communications and AT&T.
Vodafone stock jumped 4.89 percent to 195.7 pence, topping the FTSE 100 risers board.
"Speculation of a takeover is pushing the price higher," said trader Anita Paluch at Gekko Markets.
Elsewhere, traders also assessed a raft of downbeat economic news in the eurozone.
The Markit Eurozone Manufacturing Purchasing Managers Index fell to 46.8 points in March.
That was the lowest level since December and compared with the already weak 47.9 in February.
The March outcome left the key indicator below the 50-points boom-bust line.
In another blow, official data also showed that eurozone unemployment hit a record-high 12 percent in February.
"The further rise in eurozone unemployment in February, coupled with the low level of March's manufacturing PMI, confirmed the underlying weakness of the economy," noted Capital Economics analyst Jennifer McKeown.
Investors meanwhile remain cautious ahead of this Friday's eagerly awaited non-farm payrolls report in the United States, which is the world's biggest economy.
And on Thursday, the Bank of England and the European Central Bank will announce the outcome of their monetary policy meetings.
Asian equities were mixed on Tuesday in the first full session after Easter, while Japanese shares sank for a second straight day as the yen extended its recent gains.
Tokyo fell 1.08 percent -- one day after tumbling more than two percent -- while Sydney ended 0.38 percent higher.
Wall Street had retreated Monday on the back of mediocre manufacturing data and cautious sentiment after last week's record highs.
The Dow Jones Industrial Average dropped just 0.04 percent in value.