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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.

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

(This story corrects previous story to cut final paragraph with reference to PPI and CPI, which are due week of Nov. 14th)

Whittling down the euro area's mountain of debt was always going to be a long slog, even without the unpredictable political dramas in Greece and Italy that overshadowed last week's summit of the Group of 20 major economies in Cannes on the French Riviera.

But the inability of euro zone leaders to convince their G20 counterparts that they were getting a grip on events has made the task that much harder. Confidence, already fragile, has frayed further.

"It's no wonder that people aren't spending when all you hear every day is about 'the crisis'," said Michel Quintao, co-owner of a wrought-iron workshop in this corner of southeast France, some 200 km (125 miles) from Cannes.

Even before the G20 meeting and an inconclusive pair of euro zone debt-crisis summits last month, the corrosive effect of flagging confidence was taking a toll on growth.

The euro zone's composite purchasing managers' index, a timely gauge of business sentiment, fell sharply in October to 46.5 from 49.1 in September, while German manufacturing orders slumped 4.3 percent in September.

Jim O'Neill, chairman of Goldman Sachs Asset Management, said the figures suggested the 17-member euro zone was already in, or close to, recession - explaining why the European Central Bank cut interest rates last Thursday, to the surprise of many investors.

O'Neill said the spread of economic weakness from the periphery to the core of the euro zone was in large part due to contagion via the financial markets, especially the relentless pressure on Italian bonds.

"They desperately need somehow to stabilize Italian financial markets," O'Neill said.

MEANINGFUL RISKS

Undermined by market mistrust of Prime Minister Silvio Berlusconi's government, Italy's 10-year bonds yields soared to a euro era high of 6.4 percent last week.

That is close to levels that made the debt-service burdens of Greece, Ireland and Portugal unsustainably onerous and triggered bailouts by the euro zone and the International Monetary Fund. But Italy, with 1.9 trillion euros in public debt, is simply too large to bail out.

O'Neill said it boiled down to vanishing confidence. After all, until July, Italy was relatively untouched by the maelstrom despite weak growth that has averaged just 0.6 percent a year since the euro was created in 1999. Even now, its cyclically adjusted budget position is one of the strongest of any major economy.

"It's a crisis of confidence: Italy needs leadership and supply side reforms to boost growth," O'Neill said.

As Europe bumbles, the rest of the world is watching anxiously, fearful of the fallout.

The United States is perhaps only half-way through its own debt workout. Recovery from the 2008/2009 recession is the weakest on record and, even though economists have marked up their forecasts for fourth-quarter growth, a slump in Europe could revive fears of a relapse.

"The risks associated with the euro area's slide into recession are meaningful," economists at J.P. Morgan wrote in their weekly Global Data Watch publication.

Asia is currently the region with the strongest economy, but it too would not escape unscathed if Europe took a big hit.

Indeed, Rob Subbaraman, Nomura's chief Asian economist based in Hong Kong, said sentiment was already being tested. Companies and the man in the street were anxious.

"Growth is cooling but it's not collapsing," Subbaraman said. Still, he said it was fanciful to imagine that Asia could decouple from its major Western markets. "Asia is very much integrated into the global economy, and if things deteriorate, we'll get hit hard again," Subbaraman said.

CONFIDENCE TRICK

It was telling that Australia, whose reliance on commodity exports makes it a good barometer of global demand, saw fit to cut interest rates last week for the first time since April 2009. The Reserve Bank of Australia (RBA), the central bank, said a 'mildly restrictive' policy was no longer appropriate.

"The RBA has a very good track record on monetary policy, yet they felt compelled to take their foot off the brake," Subbaraman said.

China, which sends 20 percent of its exports to the European Union, has tirelessly pressed for a resolution to the euro zone's problems, although President Hu Jintao, like other G20 leaders, conspicuously declined in Cannes to contribute to the bloc's rescue fund.

Ting Lu, a Bank of America Merrill Lynch economist based in Hong Kong, is forecasting robust 8.7 percent year-on-year growth for China this quarter and 8.6 percent in 2012. But he said a sharp slowdown could not be ruled out in the event of an economic slump in Europe or a break-up of the euro.

"Our central case is a soft landing. We do have a scenario for a hard landing, but it's not because of domestic Chinese issues," Lu said.

In short, the world economy is increasingly hostage to the fast-changing politics of the euro zone. For want of leadership, uncertainty and fear are sapping the spirits of entrepreneurs, investors and consumers.

"Let me be clear," Canadian Prime Minister Stephen Harper said in Cannes. "Moving the European plan forward remains critical to restoring confidence and growth in the global economy."

(Editing by Erica Billingham)

Yang, however, made no mention about increasing investment in Europe in his statement late on Saturday on President Hu Jintao's trip to the G20 leaders' meeting in southern France.

"We believe that Europe has the complete wisdom and ability to solve the debt problem," Yang said in remarks published on the Foreign Ministry's website.

"China has always supported Europe's response to the international financial crisis and its economic recovery efforts," he said.

The euro zone has been looking to China play a role in supporting its rescue fund by investing some of its $3.2 trillion in foreign exchange reserves -- the world's largest.

But there are limits to what Beijing can actually deliver, Cheng Siwei, a former top Chinese lawmaker, said on Saturday, even though China is willing to help Europe, its largest export market, to deal with the debt crisis.

Leaders of the world's major economies, meeting on the French Riviera, told Europe to sort out its own problems and deferred until next year any move to provide more crisis-fighting resources to the International Monetary Fund.

Yang said that Hu emphasized during his trip "the development and the recovery of the European economy to achieve recovery" of the global economy.

(Reporting by Sui-Lee Wee; Editing by Sanjeev Miglani)

"It looks like we're going to have yet another meeting ... The consensus view (among the G20) is that we cannot wait that long (until February meeting in Mexico). We do need to restore market confidence," Canadian Finance Minister Jim Flaherty said during a panel discussion in Berlin.

G20 leaders failed at a summit in Cannes this week to secure new money from potential investors such as China and Brazil for efforts to overcome the euro zone debt crisis, which continues to unnerve financial markets as political turmoil in Greece has jeopardised a new Greek bailout agreement and Italy's high debt has become a focus of market attention.

German Chancellor Merkel said there was a lot of work to be done to solve the crisis and it could take a decade before the euro zone was in a better situation.

"(It will) certainly take a decade until we are in a better position again," Merkel said in her weekly podcast on Saturday. "We have a whole chunk of work ahead of us, I've got to say."

In Greece, Prime Minister George Papandreou, who survived a confidence vote on Friday but is expected to step down, said negotiations to form a coalition government would start soon. He called for a broad-based government to secure a bailout from the euro zone, the main weapon in Europe's battle against the spreading economic crisis.

While euro zone leaders have pressed China to put money in the currency bloc's bailout fund, an influential adviser to China's government said on Saturday that Europe should not count on Beijing.

"China certainly hopes the debt crisis could be resolved. If the crisis spreads, it could lead to a break-up of the euro zone and affect the global monetary system as the euro is the second-largest reserve currency," Cheng Siwei, a former top Chinese lawmaker, told reporters in Beijing.

"But don't pin high hopes on China. China cannot be a hero to the rescue," he said. "China will lend a helping hand within its capacity but Europe must rely on itself.

Merkel said all of Europe had overspent for years but welcomed that all euro zone members had agreed to a debt brake like Germany's.

"Almost all European countries have spent more over the years than they earned," she said.

(Writing by Susan Fenton)

"If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect," Mersch said according to extracts of an interview with Italian daily La Stampa to be published on Sunday.

Asked if this meant the ECB would stop buying Italy's bonds if it did not adopt reforms it has promised to the European Union, Mersch, who heads Luxembourg's central bank, replied:

"If the ECB board reaches the conclusion that the conditions that led it to take a decision no longer exist, it is free to change that decision at any moment. We discuss this all the time."

Since the ECB resumed its bond buying programme (SMP) around three months ago it has purchased some 100 billion euros of government bonds, a majority of which are thought to be Italian BTPs.

Mersch said the ECB did not want to become a lender of last resort to help the euro zone solve its debt crisis and said it was concerned that its job could be made more difficult by governments that "don't meet their responsibilities."

"Our job is not to remedy the errors of politicians," he said.

Mersch also defended the right of Italian Lorenzo Bini Smaghi to remain on the ECB board even though this means Italy now has two members and France has none, much to the annoyance of French President Nicolas Sarkozy.

"He (Bini Smaghi) has an eight year mandate, the treaties do not say that if someone comes from a specific Treasury ministry he has a right to a place on the ECB board," he said.

"The spirit of the treaties is that everyone leaves his passport in the wardrobe when he participates in ECB meetings."

(Reporting By Gavin Jones)