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Euro zone leaders agreed on a second rescue package for debt-stricken Greece that risks triggering a temporary default and will give their financial rescue fund broader powers to try to prevent market instability spreading through the region. The news fueled a rally in European stocks on Friday, up 0.8 percent in morning trade, led by recovering banking stocks.

Sales of Microsoft Corp's (MSFT.O) flagship Windows software disappointed for the third straight quarter, taking t

Sales of Microsoft Corp's (MSFT.O) flagship Windows software disappointed for the third straight quarter, taking t he gloss off better-than-expected earnings that were aided by an unusual 1819877377 low tax rate.

Advanced Micro Devices Inc (AMD.N) forecast that its revenue will rise faster than Wall Street expected and that its margins will increase, helping its shares to a 6 percent after-hours rally.

Biopharmaceutical company Bristol-Myers Squibb Co (BMY.N) said it would buy privately held Amira Pharmaceuticals for $325 million in cash to expand its drug offerings to patients with fibrotic diseases.

Activist investor Carl Icahn urged Motorola (MMI.N) to consider splitting off its patent portfolio to cash in on surging interest in wireless technology from companies like Google Inc (GOOG.O) and Apple Inc (AAPL.O).

The U.S. Justice Department is looking into allegations that News Corp's (NWSA.O) advertising unit hacked into com puters of a competitor, NBC News reported on Thursday, citing the competitor's lawyer.

Apple Inc (AAPL.O) is in early talks to join the bidding for Hulu, the online video site that Walt Disney Co <DIS .N>, News Corp (NWSA.O) and its other owners have put up for sale, Bloom 1650815591 cited two unidentified sources as saying.

Toyota Motor's (7203.T) global output is likely to rise to about 7.7 million units for the financial year to next March, up 4 percent from the automaker's earlier forecast, helped by a recovery in its parts supply chain, the Nikkei business daily reported on Friday.

Investors awaited results from companies such as Caterpillar (CAT.N), General Electric (GE.N), Honeywell International (HON.N), McDonalds (MCD.N) and Verizon (VZ.N).

U.S. stocks climbed on Thursday as signs of progress on the U.S. debt talks and concrete action from Europe on its own debt crisis heartened investors.

The Dow Jones industrial average .DJI gained 152.50 points, or 1.21 percent, to 12,724.41. The Standard & Poor's 500 Index .SPX rose 17.96 points, or 1.35 percent, to 1,343.80. The Nasdaq Composite Index .IXIC advanced 20.20 points, or 0.72 percent, to 2,834.43.

(Reporting by Blaise Robinson)

Euro-zone sensitive plays like HSBC (0005.HK), which makes up a chunky 15 percent of Hong Kong's Hang Seng index, rose nearly 3 percent, helping the index gain 1.7 percent.

In Japan, stocks such as Canon (7751.T) and Nikon (7731.T) climbed, benefiting from a stronger euro, which would boost their exports.

Even as markets greeted the Europe news with relief, the single currency still faces considerable headwinds in its march toward a early May peak of near $1.50 as doubts regarding longer-term effectiveness of the deal remained.

An emergency summit of leaders of the 17-nation currency area pledged on Thursday to conduct a second bailout of Greece with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

Investors who have been stricken by a series of factors ranging from the U.S. and Europe debt crises to concerns about a sharp slowdown in China used this rare bit of good news to pick up bargains.

Australian shares .AXJO rose one percent while Japan's Nikkei .N225 climbed 0.8 percent though a stronger yen may check gains.

The MSCI index of shares for Asia ex-Japan .MIAPJ0000PUS rose more than 1.1 percent, set for a fourth consecutive day of gain.

Equity gains were also sustained by a strong close on Wall Street with banks among the best performers after surprisingly strong results from Morgan Stanley (MS.N).

Emerging markets remain a preferred investment destination despite the uncertainty surrounding markets. Both emerging market equities and debt recorded decent inflows in the week ended July 20, according to Thomson Reuters Lipper data.

EURO GAINS SHORT-LIVED?

Demand for risk was also rekindled as hopes of a breakthrough in the U.S. debt deadlock gathered momentum with the White House and top lawmakers scrambling to sort through competing options before a August 2 deadline.

In currency markets, the euro vaulted more than 1 percent to as high as $1.4440 on trading platform EBS, the highest level since July 6, before easing slightly to $1.4386, up more than a percent since Thursday.

The single currency's way forward is strewn with technical resistance levels in the areas of 1.4458, 1.4493 and 1.4519.

Barclays Capital said the latest rescue package remains short of key details in areas like private sector involvement and the proposed size of the euro zone's rescue fund.

"The dollar is broadly weighed down, while the euro was lifted mainly by short-covering and it may have some more room to climb until around $1.45," said Makoto Noji, senior bond and currency strategist at SMBC Nikko Securities.

"Still, the market is not overly optimistic as the euro's effective exchange rate has not come up. The euro also remains under pressure against the Swiss franc and the yen as the euro zone debt problems linger," Noji said.

For now, though, markets focused on the headline news and pushed down safe-haven assets like gold and U.S. Treasuries.

Gold fell to around $1,590 an ounce, about $20 below a record high of near $1,610 set on Tuesday. Silver tumbled more than 2 percent.

In bond markets, yields on ten-year U.S. Treasury notes stabilized around 3 percent after rising by more than 12 basis points in the past three sessions.

The results failed to excite a market already wary about growth prospects for the company and PC industry as netbook sales give way to tablets. The stock was flat in after-hours trading.

"All eyes are on Windows and how they are ultimately going to extend this franchise in the future, as the PC business continues to lose share to the tablets," said Josh Olson, technology analyst at money manager Edward Jones. "Microsoft is really a show-me story in terms of its ability to extend its core flagship products to these new growth platforms."

On Wednesday, chipmaker Intel Corp warned that PC sales will not be as strong as it had expected this year.

Microsoft is expected to enter the tablet market in earnest next year with the launch of its next operating system -- code-named Windows 8 -- which will be compatible with the low-power chips designed by ARM Holdings favored by tablet and mobile phone makers.

Despite the Windows dip, Microsoft managed to ease past Wall Street's earnings estimates, helped by strong sales of its Office software and Xbox game console, as well as a dramatic drop in its tax bill.

The world's largest software maker follows Google Inc, Apple Inc and International Business Machines Corp in reporting surprisingly good results as technology spending holds up relatively well in an uncertain economy.

BIG BEAT

The Redmond, Washington-based company on Thursday posted net profit of $5.87 billion, or 69 cents per share, up from $4.52 billion, or 51 cents per share, in the year-ago quarter.

That easily beat Wall Street's average estimate of 58 cents, according to Thomson Reuters I/B/E/S. Microsoft has beaten the average profit estimate for each of the last nine quarters.

Microsoft was helped by an unusually low tax rate of 7 percent in the quarter, which cut its tax bill by more than $1 billion from the year before, to $445 million. The company, which gets most of its revenue from overseas, said the savings were due to a one-time tax gain and more business flowing through its regional centers in the low-tax jurisdictions of Ireland, Singapore and Puerto Rico.

Sales rose 8 percent to $17.37 billion, ahead of analysts' average estimate of $17.23 billion, boosted chiefly by sales of Office, Xbox and server software behind Microsoft's push into Internet-centric, or "cloud" computing.

Microsoft shares fluctuated after the results were announced in after-hours trading, settling close to their closing price of $27.09 on Nasdaq. The stock is up 8 percent over the past 12 months, compared to a 30 percent rise in the Nasdaq composite index. The shares are stuck at a level first hit in 1998, adjusted for stock splits.

"These numbers are good. The question is, what will make Microsoft break this range in which it is stuck, between $25 and $28?" said Trip Chowdhry, managing director at Global Equities Research. "I don't see these numbers giving an indication that the stock is going to break away."

OFFICE, XBOX STAR

Spending by businesses on technology has generally outstripped cash-strapped consumers since the worldwide economic downturn.

Microsoft's business division, which last month rolled out online versions of its popular Office suite of programs such as Outlook, SharePoint and Excel, was the company's biggest seller in the quarter, racking up a 7 percent increase in sales to $5.8 billion.

The server and tools business, which sells software used by datacenters -- an essential building block of cloud computing -- posted a 12 percent increase in sales to $4.6 billion.

The entertainment and devices unit, which sells the company's video game and phone products, posted a 30 percent increase in sales to $1.5 billion, mostly due to the popularity of the Xbox and the new hands-free gaming Kinect add-on.

Sales at the Windows unit fell 0.8 percent to $4.7 billion. PC sales grew only 2.3 percent in the second quarter, according to tech research firm Gartner, well below earlier projections, as economic uncertainty hangs over consumers and Apple's iPad and other tablets eat into the market.

Microsoft's perennial money-losing online services unit, which runs the Bing search engine and MSN Internet portal, posted a 16.5 percent increase in sales to $662 million, but its loss widened to $728 million from a loss of $688 million a year ago, as Microsoft continues to pour money into attacking Google. The unit has now lost almost $6.5 billion in the last three fiscal years.

(Additional reporting by Alexei Oreskovic in San Francisco and Liana Baker in New York; Editing by Richard Chang)