An exchange traded fund that invests in European financial stocks rallied Tuesday on higher-than-normal trading volume. The ETF climbed as tensions eased somewhat over the region’s debt crisis.

The iShares MSCI Europe Financials Sector Index Fund (NasdaqGM: EUFN) was up about 6% in afternoon action Tuesday.

As borrowing costs for European lenders have inched higher, concerns are mounting over the possibility of Greece defaulting along with other major European economies. Bank stock indexes have slid 30% in 2011 in the U.S. and Europe, leaving the ETF down almost 33% this year.

“The next three weeks are absolutely critical, and they can still stabilize the markets, but I wouldn’t tell my clients to put  money to work until we see it,” said Rebecca Patterson, JP Morgan chief market strategist, in a NY Times report. “European policy makers have gotten well behind the curve. It’s not about the periphery anymore; its about the core, too.” [European Bank ETF Slides on Risk Factor]

There will be critical votes by European parliaments this week, concerning a bailout package that targets Greece, Ireland and Portugal. All 17 countries of the Eurozone have to approve the European Financial Stability Facility, with six countries currently signed off, according to the report. [European Financial ETF Down 33% in 2011]

The bailout was agreed to in July with worries focused on Greece, Ireland and Portugal. Today, the possibility of a default in Spain and Italy are a reality and banks in France and Germany are at risk should Athens default.

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