Before Europe?s debt crisis flared anew last summer, rattling markets and choking off a revival in mergers and acquisitions, huge corporate cash piles and cheap debt had fostered hopes that deal-making would recover strongly last year.

In the first half of 2011, the dollar volume of announced mergers worldwide neared its highest levels since the financial crisis. But that momentum proved fragile as deal volume tumbled 19%, to about $1.1 trillion, in the second half of 2011, compared with the same period the year before, according to Thomson Reuters data.

Now, with stock and credit markets steadier, deal makers are growing confident that 2012 will be better for business. Not only do they point to cheap financing and the large amounts of cash on corporate balance sheets, but they say that companies that have already cut costs may decide that they need to make acquisitions to drive growth in the face of a tepid economy.

?The dialogue has gotten back on track,? said Steven Baronoff, chairman of global mergers and acquisitions at Bank of America Merrill Lynch. ?If Europe doesn?t go off the rails, you?ll see a return to long-term positive factors.?

According to a study by Ernst & Young, 36% of companies plan to pursue an acquisition this year.

?We?re optimistic that the need and desire for growth will overcome the volatility headwinds, but that?s where the battle will be waged,? said Jim Woolery, JP Morgan?s co-head of North America M&As.

And there is pent-up demand among buyout shops. After a long stretch of tempered activity, many private equity firms are still feeling the pressure to deploy capital or engineer exits. Still, companies that explore potential deals will most likely tread cautiously. For one, it remains unclear whether European leaders have done enough to ensure that the financial system remains stable on the Continent. And in the US, 2012 is a presidential election year. With the White House at stake, companies in businesses like finance and health care may not pursue transactions until the outlook for regulation in those industries is clearer.

Many bankers expect to see notable deal activity in energy, industrials, retail, health care and technology. The energy and health care industries produced some of the largest transactions of 2011, like Express Scripts? $34.3-billion purchase of Medco Health Solutions, Duke Energy?s $25.9-billion takeover of Progress Energy and Kinder Morgan?s $36.2-billion deal for the El Paso Corporation.

The outlook for mergers and acquisitions worldwide varies sharply by region, bankers say. The Americas, where deal volume rose 14.7% in 2011, will remain a bright spot, according to Baronoff of Bank of America Merrill Lynch.

Opinion is more divided over Europe, however. While economic and market woes will lead to some bargains and opportunities, deal-making may still be largely stifled by the persistent sovereign debt crisis.

?Europe is still a mess,? said David A. DeNunzio, vice chairman of Credit Suisse?s mergers and acquisitions group. ?People thought there would be more divestiture activity as companies try to get more liquid, but that hasn?t happened yet.?

The disparities among regional economies is expected to fuel more cross-border transactions in 2012. While it is not a new trend for US businesses to seek growth in emerging markets, bankers are starting to see a reverse in deal flow. After a string of strong quarters, cash-rich corporations in markets like Brazil and China are now bargain-hunting for established brands in developed markets.

?We weren?t having these conversations even three years ago,? said DeNunzio, who expects an increase of 10 to 15% in cross-border transactions. ?Many companies in China and Brazil see this as a once-in-a-lifetime opportunity to acquire world-scale brands at pretty attractive prices,? he said.

At the same time, companies are paying more attention to potential regulatory hurdles, whether their transaction plans are cross-border or domestic. The biggest setback in mergers and acquisitions of 2011 was AT&T?s aborted $39-billion purchase of T-Mobile USA from Deutsche Telekom, which met opposition from the US administration.

A deal announced early in 2011, the merger of NYSE Euronext and Deutsche B?rse, remains in regulatory limbo as European authorities seek additional concessions.

Though signs point to a stronger mergers and acquisitions market, there is at least one class of deals not ready for a comeback: the highly leveraged buyout.