Risk appetite returned with a vengeance to financial markets on Thursday as investors took heart from an agreement between G20 leaders on fighting the global economic crisis and a decision by US authorities to offer leeway in accounting rules for toxic assets.

But markets were caught on the hop by a smaller-than-expected interest rate cut by the European Central Bank, which added to pressure on government bond yields and helped push up the euro. There also remained some caution about Thursday’s crucial US non-farm payrolls report.