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European stocks were up 0.7 percent in morning trade, extending the previous session's strong gains, as investors watched to see if the European Central Bank would rush through new measures to resolve the euro zone debt crisis.

The European Central Bank is expected to keep unlimited liquidity operations in place for longer with the euro zone debt crisis raging unabated, but analysts say it is unlikely to announce mass new bond purchases on Thursday.

The cost of insuring peripheral euro zone debt against default eased on Thursday ahead of the ECB meeting, while the euro gained ground against the dollar.

Oil was steady near $87 on Thursday after rallying 3 percent in the previous session on encouraging jobs data in top consumer the United States that helped drive prices to their highest in almost three weeks.

Singapore's GIC and OCBC's (OCBC.SI) insurance arm have joined a group led by U.S. private equity firms KKR KKR.UL and TPG Capital TPG.UL in buying Morgan Stanley's (MS.N) 34.3 percent stake in top Chinese investment bank CICC.

General Motors (GM.N) and its Chinese partners sold 196,990 vehicles in China in November, up 11.2 percent from a year earlier, while Toyota Motor (7203.T) said it sold 17 percent more cars in China in November compared with a year earlier.

Costco Wholesale Corp (COST.O) posted a 9 percent rise in November sales at store open at least a year, helped by higher gasoline prices and strengthening foreign currencies.

Dutch mail and logistics firm TNT (TNT.AS) on Thursday detailed the planned separation of its Express activities from its mail activities and said it would keep a 29.9 percent stake in the Express unit. The move cuts down TNT to its old postal activities and could make Express a takeover target in a new consolidation wave in the global sector in which Fedex (FDX.N) and United Parcel Service Inc (UPS.N) are big rivals and most growth is in emerging markets such as in Asia.

Economic data on tap for Thursday includes weekly initial jobless claims, pending home sales for October, and retail chain store sales for November.

Companies expected to report quarterly results include Novell Inc (NOVL.O), The Kroger Co (KR.N), Toll Brothers (TOL.N) and Del Monte Foods (DLM.N).

The Dow and the S&P 500 scored their biggest gains in three months on Wednesday as efforts to resolve the EU's debt crisis helped push the S&P above 1,200, an important technical level that signals the potential for the rally to continue.

The Dow Jones industrial average .DJI gained 249.76 points, or 2.27 percent, to 11,255.78. The Standard & Poor's 500 Index .SPX rose 25.52 points, or 2.16 percent, to 1,206.07. The Nasdaq Composite Index .IXIC added 51.20 points, or 2.05 percent, to 2,549.43.

(Reporting by Blaise Robinson; Editing by Hans Peters)

Even after Ireland's bailout, investors have been losing confidence that Portugal and Spain can escape a similar fate, leading to expectations the ECB will announce backstop measures to keep cash flowing in its financial system, though it may disappoint investors by not being ready to increase bond purchases just yet.

"The sovereign debt crisis has shown early signs of transforming into a banking and liquidity crisis," Todd Elmer, currency strategist with Citi in Singapore, said in a note.

"A breakdown in market function is likely to drive risk reduction among investors, which should favor sharp dollar strengthening vs euro.

"Such price action could eventually force a stronger response from both fiscal and monetary authorities in Europe, but expectations for imminent action are probably premature."

Wall Street's 2 percent rally on Wednesday led by companies most sensitive to economic turning points and a U.S. Treasuries sell-off after reports showed strength in labor and industrial sectors also sparked further equity buying in Asia. .N

There were limits though on how the seeming optimism was feeding through to greater risk taking. For example, the high-yielding Australian dollar slid 0.5 percent after retail sales posted the biggest monthly decline in 15 months in October.

Also, shares of Toyota Motor Corp (7203.T) fell 1 percent and were the most active in early trading in Tokyo after the company's U.S. sales dropped 3 percent in November compared with the 17 percent rise in U.S. auto industry sales.

The Nikkei led Asian markets higher, rising 1.9 percent .N225 to the highest since June 2010. Turnover has been picking up as well, with the 5-day moving average of total turnover holding above the 20-day moving average for longer than a month. .T

The MSCI index of Asia Pacific stocks outside Japan was up 1 percent .MIAPJ0000PUS after hitting a two-month low on Monday, with the materials and technology sectors outperforming.

The euro was at $1.3130, nearly unchanged on the day. The currency ended the New York session above its 200-day moving average at $1.3122 and Wednesday's highs and closing level were both higher than the prior day -- usually a signal of more gains ahead.

With so much hinging on the whims of policymakers though, the risk of disappointment was high and therefore a resumption of the euro slide a strong possibility.

"I'd think the euro is quite possibly going to return to below $1.30," said Sean Callow, currency strategist at Westpac Bank in Sydney.

The Australian dollar was down 0.4 percent to US$0.9648 but holding well above a base of support in the $0.9530 area, the two-month low plumbed overnight.

Anticipation of how European policymaker action, or inaction as it may be, would affect how risk taking moves asset prices was having a mixed impact on commodity prices.

Hopes that the ECB will rush through new anti-crisis measures, such as expanding its government bond buying, helped the euro stabilize and lifted stock markets.

But the central bank risks disappointing markets if, as several analysts predict, it will only decide at its monthly meeting that its liquidity taps for euro zone banks will stay wide open and merely hint at more government bond purchases.

"The price action ... adds to risk that the market may be disappointed with today's outcome," Citigroup currency and markets strategists said in a note.

Even European powerhouse Germany struggled to sell its bonds on Wednesday and Portugal's borrowing costs soared in further signs that last weekend's 85 billion-euro ($110.7-billion) EU-IMF rescue of Ireland and leaders' pledges to defend the euro at any cost failed to impress investors.

European Union leaders appeared to pass the baton to the ECB.

Economic and Monetary Affairs Commissioner Olli Rehn said recent EU actions provided a sound basis for further stabilization steps by the central bank, and European Commission President Jose Manuel Barroso said he was confident the ECB would do whatever was needed.

"I'm sure the ECB is analyzing the current situation and that it will take the decisions necessary to guarantee the financial stability of the euro zone," he said.

Markets are now waiting to see how ECB President Jean-Claude Trichet will respond when he addresses the press at 1330 GMT on Thursday. Those most bullish expect to hear that the ECB will ramp up its government bond buying program, launched in May after Greece was bailed out.

HINTS

But many market watchers expect no more than hints in that direction, saying it is too soon for any conclusive announcement given a fierce debate within the ECB about the merits of such action.

Influential Bundesbank head Axel Weber has called for the program to be scrapped, and fellow ECB members have criticized the U.S. Federal Reserve's decision to buy $600 billion of U.S. debt.

"Thursday's meeting could send the first signal that ECB is on course for stepping up its purchase program," RBS economist Jacques Cailloux said in a note to investors.

Yet ECB policymakers may feel under pressure to act faster, given growing concerns that the crisis could spread beyond Europe.

In Washington, the White House said President Barack Obama was briefed regularly on developments in Europe, while a senior Treasury official was heading to Berlin for talks on the economic situation after meetings on Wednesday in Madrid.