European stock markets and oil prices recovered on Friday following heavy losses this week on fears that interest rate hikes aimed at cooling decades-high inflation will spark a global recession.

London stocks rallied 1.3 per cent around midday with investors brushing aside news of bruising defeats for Britain's ruling Conservatives in by-elections on Thursday. 

The pound firmed against the dollar and euro, despite data showing a drop in UK retail sales volumes as inflation soars.

Paris stocks jumped 1.8 per cent in eurozone trade, while Frankfurt rose 0.8 per cent with gains tempered by news of the worsening German business climate.

"Stock markets are taking a breather after being beat up... as recession fears took their toll," OANDA analyst Craig Erlam told AFP.

But he warned that stock markets remain "vulnerable to another onslaught if the news does not improve".

Stock markets remain "vulnerable to another onslaught if the news does not improve"- OANDA analyst Craig Erlam

Asian stock markets closed higher after Thursday's gains on Wall Street.

The slight recoveries come after global markets have been thrown into turmoil for months owing to soaring inflation, interest-rate hikes, the Ukraine war and China lockdowns.

Federal Reserve boss Jerome Powell this week told lawmakers a recession was "certainly a possibility".

He suggested officials were ready to press on with big rate hikes, following last week's three-quarter point increase for US borrowing costs that sent markets tanking.

By contrast, the Bank of Japan is sitting tight over interest rate rises, even as the country's inflation stands at a seven-year high.

Sentiment in Asia has meanwhile been boosted by comments from Chinese President Xi Jinping suggesting an end to China's tech crackdown as well as possible new measures aimed at lifting the economy.

Hong Kong shares were among the biggest winners on Friday thanks to a rally in tech giants including Alibaba, Tencent and NetEase.