Europe Stocks Up But Italy Still a Worry

European stocks were mostly higher on Thursday after European Central Bank chief Mario Draghi pledged to defend the euro zone while a raft of positive earnings helped maintain upward momentum.

But the euro weakened after Italy's benchmark index retreated on continued uncertainty about the country's political future.

Italian and Spanish government bonds fetched higher prices, which move in the opposite direction to yields, benefiting from improved sentiment in stocks and the absence of debt auctions by those countries on Thursday.

The benchmark Stoxx 600 index was up and International Consolidated Airlines Group SA was the standout performer. Its fourth-quarter operating loss was narrower than feared and analysts applauded its restructuring plans and tough stance on its Spanish airline, Iberia.

Health-care and pharmaceuticals company Bayer AG was one of the top performers on the blue-chip Euro Stoxx 50 index, after fourth-quarter sales came in slightly above consensus.

Meanwhile, Frankfurt's DAX index pared gains after German jobless numbers for February showed the total number of unemployed in the country had risen in February.

Still, the German labor market has coped well amid the euro-zone economic crisis, and economists remained positive.

"The German labor market remains solid as a rock, defying the winter weather and the euro crisis," said Carsten Brzeski, an economist at ING NV.

Separately, the annual rate of inflation in the euro zone fell to 2.0% in January, from 2.2% in December. The ECB aims to keep annual inflation just below 2.0% over the medium term.

The euro hit a day's low of $1.3106 against the dollar after Italy's FTSE Mib dropped into negative territory, evidently unimpressed with Mr. Draghi's comments and still smarting after the inconclusive results of the weekend's elections.

"We are committed to preserving the integrity of our currency, in the interests of all people of the euro area," Mr. Draghi said at an event in Germany late Wednesday.

The Japanese yen was also a focal point for the session, after the prime minister nominated Asian Development Bank President Haruhiko Kuroda as head of the Bank of Japan. Mr. Kuroda shares the government's sympathy for continued efforts to stimulate Japan's deflationary economy. As a result, the yen remained weaker against the dollar.

Elsewhere, U.S. stock futures were mildly positive. Wall Street closed at five-year highs on Wednesday, after Federal Reserve Chairman Ben Bernanke continued his defense of the Fed's ultra-loose money policy in his semiannual report to Congress.

In January, the Fed decided to keep buying $85 billion worth of Treasury bonds and mortgage-backed securities a month until it saw a substantial improvement in the labor market, while also keeping interest rates close to zero since December 2008. Federal Open Market Committee minutes had suggested some Fed officials were worried that these policies could create financial instability and foster inflation.

Still to come, the latest fourth-quarter gross domestic product revision in the U.S. is expected to show the economy growing at a slow pace.

Write to Cindy Roberts at cindy.roberts@dowjones.com