German chancellor Angela Merkel said she was hopeful that the proposed EU fiscal pact now being drawn up will retain stricter budget discipline limits as envisaged.

"We're still in the thick of the negotiations," Dr Merkel told reporters in Berlin today when asked if the pact is being watered down. Some parts "still need to be worked on."

"I'm not pessimistic that we will make progress."

Meanwhile Minister for Finance Michael Noonan said today Ireland was better placed to withstand the “contractionary effects of budgetary consolidation” because it was a small, open economy.

Speaking in Berlin ahead of talks with his German counterpart, Wolfgang Schäuble, Mr Noonan said however hat Ireland's recovery was highly dependent on the performance of its trading partners in Europe, including Germany.

On the proposed EU fiscal pact, Mr Noonan said while the negotiations reflected the need for tighter fiscal discipline they must be balanced with a “complementary focus on fostering growth and creating jobs”.

He also insisted that Ireland’s relatively low rate of corporation tax was non-negotiable plank of Government policy.

"Both the rate itself and the certainty around its retention have been crucial to Ireland's economic development," he said. "It will not change as it remains crucial to our recovery back to the sort of sustainable, innovation-driven economy we were before we became too dependent on property and construction."

European shares and the euro managed broad gains earlier, helped by solid demand at government debt sales, but uncertainty over the outcome of crucial Greek debt restructuring talks kept markets under pressure.

The key focus has been on a meeting between international creditors and the Greek government later today over the interest rate Greece will offer on new bonds and a plan to enforce private investor losses.

A deal with the private sector is vital to cash-strapped Athens if it is to gain its next batch of international aid and avoid going bankrupt when €14.5 billion of bond redemptions fall due in late March.

The euro was earlier trading up 0.4 per cent on the day at $1.2796 but had pared gains from a session high of $1.2845, hit as an IMF report prompted investors to cut back bearish bets.

The dollar took a hit as a result of the euro's gains and, against a currency basket, fell 0.5 per cent to 80.779.

Reports emerging from Washington suggest the International Monetary Fund believes it would need up to $600 billion in new resources to lend to member countries, including $100 billion of the total for a "protection buffer".

Analysts said global share markets were still looking for reasons to go higher after economic data from China and Germany yesterday encouraged hopes that the outlook was improving and prodded shares to 5.5-month highs.

"Global stocks are still over-sold and have room to grow on further good news," said Tom Elliott, global strategist at JP Morgan Asset Management.

The concern over the euro zone's debt crisis kept the FTSEurofirst 300 index of top European shares in negative territory today, and the index was down about 0.1 per cent at 1,033.30 points.

Major European bourses were mixed early this afternoon with the FTSE 100 down 0.04 per cent, the Dax up 0.22 per cent and the CAC 40 down 0.58 per cent. In Dublin, the Iseq index of leading shares was up 2.62 points to 2946.64 at 2pm.

Euro zone debt auctions will continue to be a major driver of investor sentiment with several governments lining up to refinance their debts this week.

A German sale of €3.44 billion of two-year bonds saw strong demand as concerns over Greece led investors to stock up on safe-haven debt, while a widely-watched €2.5 billlion sale of Portuguese treasury bills benefited from ample liquidity in the financial system.

Portugal is the only country in the euro zone, apart from Greece, that all the major rating agencies rate as junk.

But most attention will be on French and Spanish bond auctions later in the week.

In commodity markets US crude oil prices rose above $101 a barrel, adding to sharp gains the previous session, supported by a weaker dollar and recent better-than-expected economic data .

Reuters/Bloomberg