Treasury Secretary Timothy Geithner, on a whistle-stop tour of Europe to lobby for action, voiced confidence in a Franco-German plan to overhaul the European Union's treaty to tighten budget discipline.

"I have a lot of confidence in what the president of France and the minister are doing, working with Germany to build a stronger Europe," Geithner told reporters after talks with French Finance Minister Francois Baroin.

French President Nicolas Sarkozy and German Chancellor Angela Merkel will lay out their plan at Friday's EU summit to impose mandatory penalties on euro states that exceed deficit targets, with the aim of restoring market trust and preventing the region's debt crisis spiraling out of control.

The ECB's governing council holds a crucial meeting tomorrow before the EU summit, at which most economists expect it to cut interest rates to 1.0% from 1.25% , introduce longer-term liquidity tenders for banks and widen the collateral they can use to borrow from it.

Ratings agency Standard & Poor's heightened the sense of crisis this week by warning it could cut credit ratings across the 17-nation currency bloc, including for its EFSF rescue fund, a move that would fundamentally weaken it.

But growing market optimism that euro zone leaders are on track to produce a confidence-boosting package of measures lifted risk appetite on Wednesday, boosting stocks and the euro.