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Sentiment will probably receive a boost after Greek Prime Minister George Papandreou won a parliamentary confidence vote early Saturday.

The vote helped the cash-strapped country avoid snap elections that would have destroyed its bailout deal and turned up the flames on the euro zone's economic crisis, though risks to the global financial system remain.

Greece is still in turmoil. Papandreou signaled he would still stand down, calling for a new coalition to ram the bailout deal through parliament and keep the nation from going bankrupt.

Other challenges haven't gone away, such as keeping countries like Italy from going the way of Greece. So, while investors may cheer the Greece vote, two years of crisis have taught them to be vigilant of new risks emerging from Europe's debt debacle.

"It takes away the risk of a referendum or renegotiating new terms. Net-net it's a 'risk-on' event," Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities USA, in New York, said about the Greece vote.

"How much you can rally on this? It may be temporary at best. You have still have a lot of risks like Italy. We just don't know ... All in all, it's a slight positive for stocks and a slight negative for bonds."

Though investors are cautious, stocks may be able to keep in place the recent upward trend as more evidence suggests the U.S. economy is progressing despite Europe's woes.

Friday's U.S. monthly jobs report suggested some improvement in October, even though the headline payroll numbers appeared weaker than expected.

"What I'm seeing at the moment is that investors are getting more reassured with the picture that the U.S. may actually do OK despite the troubles in Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $13 billion.

"The more recent datapoints on the U.S. economy and earnings profiles are supporting that assertion," she said.

Stocks ended with losses for the week.

But on Monday, the benchmark Standard & Poor's 500 index .SPX posted an 11 percent gain for October, its best monthly percentage rise since December 1991.

With results in from some 433 of the S&P 500 companies, 70 percent have beaten forecasts on third-quarter earnings, defying views that growth would be hit by the problems in Europe and a slower economy in China.

Analysts have said earnings growth has helped to support the market and has taken some of the focus away from Europe, even if just momentarily.

More reports are expected next week, including several retailers like Macy's (M.N), whose results could shed some light on how the holiday shopping season may go.

"If there isn't a lot of resolution on the European front, some of the big company earnings could be market movers. There are a lot of positives about the U.S. economy, and strong earnings are one of them," said Rob Morgan, chief investment strategist at Fulcrum Securities in Philadelphia.

EUROPE STILL CAUSE FOR VOLATILITY

Still, strategists see plenty of volatility ahead, making any big moves hard for short-term investors.

The CBOE Volatility index .VIX fell 1.1 percent to close at 30.16 on Friday, but is well above levels from just last summer. It was trading near 20 in early August.

On the week, the VIX rose 22.9 percent following wide market swings in four of five trading sessions.

"It's all Europe all the time unless we hear otherwise. The underlying tone and theme in the market will be set in Europe until or unless there's some finality to the debt crisis," said Steve Sosnick, equity risk manager at Timber Hill/Interactive Brokers Group in Greenwich, Connecticut.

Similarly, options strategist Frederic Ruffy of WhatsTrading.com, a website headquartered in New York, said: "Investors wait to see whether Greece will implement tough and unpopular austerity measures to avoid a messy debt default."

By taking a longer-term approach, though, some investors have been able to see the current situation as a buying opportunity, analysts said.

Stock valuations are cheap, so if earnings hold up, investors are likely to be better positioned in stocks than in bonds or cash, they said.

The S&P 500 forward price-to-earnings ratio is now at 12, its lowest in years.

"Savvy investors are using the dips to put some money to work, but this is a very difficult market if you're a short-term trader," said Fred Dickson, chief market strategist at The Davidson Cos. in Lake Oswego, Oregon.

Besides earnings, U.S. economic news has helped keep worries about another recession at bay.

Non-farm payrolls rose a tepid 80,000 in October, below economists' expectations. But employers added 102,000 more jobs than previously estimated in August and September.

And the U.S. unemployment rate slipped to 9 percent. It had been stuck at 9.1 percent for three straight months.

Among key economic reports next week are the government's data on the Consumer Price Index and Producer Price Index.

(Reporting by Caroline Valetkevitch; Additional reporting by Ryan Vlastelica, Doris Frankel and Edward Krudy; Editing by Jan Paschal and Burton Frierson)

Prime Minister Silvio Berlusconi, his government close to collapse, agreed to the step in late-night talks with euro zone leaders and U.S. President Barack Obama on the sidelines of a G20 summit in Cannes.

The move came after a European ultimatum made Greece step back from a referendum that could have triggered its exit from the euro area and agreed to seek national consensus in support of a new 130 billion euro ($178 billion) bailout program.

By contrast, discussions with Italy were smooth, European diplomats said. Berlusconi appreciated the gravity of the situation and was thoroughly engaged in the talks

"We need to make sure there is credibility with Italy's targets -- that it is going to meet them. We decided to have the IMF involved on the monitoring, using their own methodology, and the Italians say they can live with that," one EU source said.

"Italy has no problem with surveillance at all, even with the IMF being involved," he said, adding that the European Commission and the International Monetary Fund would each report separately on how Italy was meeting its targets.

The leaders of France, Germany, Italy, Spain, the European Central Bank, the IMF and European Union institutions also discussed with Obama ways of ramping up the IMF's warchest to help prevent contagion from the euro zone's debt crisis plunging the world economy back into recession.

A G20 source said no figures were agreed but the boost to IMF resources, mostly from large emerging countries such as China, could be in the range of $300-350 billion.

EU officials said three options were under consideration, including pooling the euro zone countries' rights to borrow from the IMF to build a fighting fund to support vulnerable sovereigns such as Italy and Spain. This could make available another $280-300 billion, the G20 source said.

The concession by Berlusconi was an attempt to shore up his country's perilous position on bond markets, where its borrowing costs soared well above 6 percent this week, raising doubts about its long-term ability to cope with a debt pile of 120 percent of gross domestic product. Underscoring Italy's problems, two corporate surveys this week showed Italy sliding rapidly into recession.

An Italian official denied that Italy was being singled out for special surveillance and said the whole euro zone would be under closer monitoring. However, he confirmed that Rome was willing to request IMF advice on implementing the commitments it gave EU leaders on specific reforms on October 27.

BEYOND GREEK DRAMA

G20 leaders will try to look beyond the Greek drama that has shaken their annual gathering and agree on measures on Friday that will convince markets the risk of further euro zone contagion can be stemmed.

Delegates gathered in the Riviera resort found themselves watching the euro zone battle to snuff out its biggest fire yet as Greece seemed on the brink of quitting the euro.

The EU source said a precautionary credit line was not seen as a credible option for Italy, where one of the main problems has been market confidence.

"With the general climate and Italy's lack of credibility, every small setback or problem is compounded and makes things worse, so the markets cannot have confidence," he said.

Greece's future in the euro zone may hinge on a vote of confidence in Socialist Prime Minister George Papandreou late on Friday night.

If he wins, government sources say he has pledged to step aside and make way for an interim national unity government that would enact the EU/IMF bailout plan, receive a vital aid installment and pave the way for early elections next year.

However, if he loses, Greece will be plunged into deeper political turmoil and may face a hard default and possible exit from the 17-nation single currency area.

But analysts are already eyeing Italy as a test case for the anti-crisis package agreed in Brussels last week.

"Italy holds the key to the euro zone debt crisis," BNP Paribas analyst Luigi Speranza wrote in a research note late on Thursday. "Developments in Italy are a crucial test for the credibility of the anti-crisis framework set up by the EU."

Concern is growing that Italy, the euro area's No. 3 economy and biggest government bond market, could go the way of Greece without rapid action. Berlusconi has repeatedly promised to make deep reforms, balance the budget in 2013 and trim the public debt, but there are doubts about his commitment.

A clause in a draft communique for the Cannes summit, obtained by Reuters, showed Italy would only be held to bring its budget "close to" balance in 2013 as part of a package of economic pledges aimed at reducing economic imbalances.

SARKOZY AMBITIONS OVERTAKEN

The fast-moving Greek fiasco dominated the last meeting of France's G20 presidency and crushed any hopes by President Nicolas Sarkozy of making a last-minute breakthrough on big early goals such as rethinking the global monetary system.

The draft statement seen by Reuters showed the G20 is considering an IMF proposal to create a new short-term credit line to help countries hit by crippling economic shocks.

G20 sources said talks were looking at an extension of the fund's New Agreements to Borrow (NABS), due to expire next year, and the injection of billions of dollars into the global economy through a special allocation of its Special Drawing Rights.

"It all depends on Sarkozy, how hard he pushes," one said.

The plan to ramp up SDRs should also help manage fears rippling through markets over Europe's crisis.

"The crisis in Europe is causing a global systemic crisis including Asia. Rather than creating a new global framework, everyone is expecting the IMF to become more proactive," Japanese Finance Minister Jun Azumi said.

"The focus of debate is how to set up a firewall but we consider that the IMF should become one big wall."

Final G20 sessions on Friday will focus on largely agreed topics like commodity transparency and financial regulation issues like the risks posed by high-frequency trading.

(Additional reporting by Lesley Wroughton, Gernot Heller, Daniel Flynn,; Writing By Paul Taylor and Catherine Bremer; editing by Janet McBride)

Greece's abrupt call for a referendum, just days after a deal was struck to save the debt-stricken country from defaulting, sparked panic in global financial markets, prompting EU leaders to talk of a possible Greek exit from the euro zone to preserve the single currency.

Greek Prime Minister George Papandreou bowed to cabinet rebels and agreed to step down and make way for a negotiated coalition government if his Socialist lawmakers back him in a confidence vote on Friday, raising hopes for a political consensus on the EU rescue framework.

"The market regained some calm but uncertainty remains over the outcome of today's confidence vote," said Yuji Saito, director of the foreign exchange division at Credit Agricole Bank in Tokyo. "Uncertainty at this point entails risks, as it means delays in the efforts (to resolve the debt crisis)."

MSCI's broadest index of Asia Pacific shares outside Japan jumped 3.1 percent, led by a more than 4 percent jump in materials as copper and oil rebounded. The index's energy sector soared 3.7 percent, while the technology sector gained 3.4 percent. Japan's Nikkei .N225 share average rose 1.9 percent. .T

European shares were expected to make modest advances from Thursday's rally. Financial bookmakers called the FTSE 100 .FTSE to open up 0.3 percent, Germany's DAX .GDAXI to open up 0.5 percent and France's CAC-40 .FCHI to gain 0.3 percent.

Investors may be hunting for a bargains, but underlying concern about whether measures can really be implemented to rescue Greece from its debt crisis remained intact, said analyst Woon Khien Chia of the Royal Bank of Scotland in Singapore.

"Nobody wants to take very big positions," she said, adding that even after the basic framework was agreed to rescue Greece, questions have already been raised about who was going to fund the bailout.

Late in October, Euro zone leaders struck a deal with private banks and insurers for them to accept a 50 percent loss on their Greek government bonds under a plan to lower Greece's debt burden, while asking Greece for severe austerity measures.

They also agreed that the European Financial Stability Facility, a bailout fund, would be leveraged to give it firepower equivalent to about 1 trillion euros ($1.4 trillion).

G20 leaders meeting in southern France will try to look beyond the Greek drama that has shaken their annual gathering and agree on measures that will convince markets the risk of further euro zone contagion can be stemmed.

ECB CUT SUPPORTS

Market sentiment was also supported by the European Central Bank's surprise rate cut of 25 basis points on Thursday, the first meeting under new President Mario Draghi. Draghi said the euro zone could enter a "mild recession" later this year.

"The ECB's surprise move to cut rates suggested it took a preemptive move as it forecast growth slowdown, which gave a positive surprise to the market," Credit Agricole's Saito said.

The euro steadied against the dollar around $1.38.

Hong Kong's benchmark Hang Seng Index .HSI jumped more than 3 percent, recovering almost all of this week's losses, while the iShares A50 China tracker (2823.HK), an exchange-traded fund in Hong Kong that provides the most direct exposure to mainland markets, hit its highest since mid-August.

The ECB's rate cut bolstered Shanghai-traded commodities such as iron, zinc and copper. The most-active January copper contract on the Shanghai Futures Exchange jumped as much as 4.5 percent.

Brent crude held above $110 a barrel and U.S. crude rose 0.2 percent to $94.26.

Investors' appetite eased for protection in the options market against losses, with the CBOE Volatility index VIX .VIX -- a measure of expected volatility in the S&P 500 over the next 30 days often dubbed Wall Street's "fear gauge" -- falling to 30.50 on Thursday from 32.74 the day before.

The VIX was below 30 for most of the time in the 15 years up to 2008, before being driven close to 90 by the global financial crisis in October that year. It hit this year's peak at 48 in August.

As optimism buoyed riskier assets, Asian credit markets stabilized, with the spreads on the iTraxx Asia ex-Japan investment grade index narrowing sharply by more 20 basis points. The index is a gauge of investor risk appetite.

"Its a bit more positive this morning although headline risks are still alive. Its just one step forward and two steps back," said a Singapore based trader with a European bank.

($1 = 0.728 Euros)

(Additional reporting by Umesh Desai in Hong Kong; Editing by Alex Richardson)