The Bank of Japan (BoJ) intervened in the currency market for the second day in a row to protect the countrys fragile economic recovery from a weakening dollar.
Gold, which has leapt in recent weeks as investors have sought safety for their money, halted its climb but still held on to levels not seen for two years.
The mild rally in European stocks was mainly driven by corporate news, while Japans market hit a nine-month high on hopes for the economy.
US bonds, which gained on Wednesday after FBI warnings of threats to New York landmarks, were flat. Euro zone bonds climbed as investors looked for government-backed safety despite renewed prospects for higher inflation and interest rates.
Overnight, Wall Street closed slightly higher after a rumour later denied that Osama bin Laden, accused of masterminding the September 11 attacks, had been captured.
Tensions between India and Pakistan stalked the markets.
"If theres more sabre rattling from that part of the world the market would have to take a bit more notice and worry about things," said David Fenning at spread betters City Index in London.
Kashmir and the FBI warnings have haunted markets in recent days, sending investors scurrying for traditional safe havens.
Gold, which has risen as much as 14 per cent this year, slipped off its recent highs and was trading at about $316, down from nearly $318 in New York.
Traders said profit taking was at work, but the metal would stay in investors sights. "Theres world tension around, there is still big potential. It will keep the pot boiling," said one.
Government bonds, another home for the safety conscious, have also risen on the fears, although the benchmark 10-year US treasury eased a bit in Asia. It was later yielding around 5.12 per cent, near its New York close.
Ten-year euro zone government debt yields remained close to two-week lows as fresh concerns about euro zone inflation raised by the European Central Bank were countered by safe haven flows.
Late on Wednesday, ECB chief economist Otmar Issing said he was disappointed with the pace of decelerating euro zone inflation.
The benchmark 10-year Bund yield was at 5.166 per cent, having set a two-week low of 5.145 per cent on Wednesday.
European stocks rose on positive corporate news, particularly solid earnings from Dutch financial services group ING.
The FTSE Eurotop 300 was up 0.55 per cent at 1200 points, while the Euro Stoxx 50 index gained 0.6 per cent to 3480 points.
Earlier, Tokyo stocks ended at a nine-month high for a second day in a row on hopes for economic recovery.
The benchmark Nikkei average closed up 0.15 per cent or 17.87 points at 11,979.85, its best finish since August 8.
"Japanese stocks are looking relatively good and cheap now given concerns the US recovery wont be so strong in the second half of the year," said Kiyoshi Yamanaka, portfolio manager at T&D Taiyo Daido Asset Management.
Wall Street stocks recovered from early jitters about a suspect package that closed the Brooklyn Bridge, stoking fears of a new attack, to close up on the bin Laden rumour.
The Dow Jones industrial average closed up 52.17 points, or 0.52 per cent, at 10,157.88.
"Terrorism is still the main focus," said Robert Basel, senior trader for Salomon Smith Barney, underlining the fragility of the market.
Meanwhile, the dollar jumped more than half a yen after BoJ took what officials described as "appropriate action" in the forex market.
Japan is worried that a strong yen, brought on by the falling dollar, could choke off tentative economic recovery. It stepped in on Wednesday and again on Thursday.
The dollar has been sinking against major world currencies as foreign investors have withdrawn from the US market seeking better returns elsewhere.