World shares, euro rise on ECB plan hopes

MARKETS-GLOBAL:World shares, euro rise on ECB plan hopes

new York  August 7, 2012, 0:02 IST

new York  08 07, 2012, 00:10 IST

 

Global stocks and the euro rose on Monday after Greece made progress on its debt bailout program, adding to gains driven by ECB plans to help euro zone nations under pressure from bond markets.

The gains followed a strong finish to last week after robust U.S. jobs data on Friday eased concerns about global growth.

Investor optimism was boosted by comments from European Central Bank President Mario Draghi late last week on plans for a new wave of bond purchases aimed at helping to calm the euro zone's turmoil, lately focused on Spain and Italy's high borrowing costs.

"Investors are less pessimistic about the euro zone situation. There is the expectation that something positive will come out of the ECB plan and so investors are more willing to search for risky assets that look attractive," said Aroop Chatterjee, senior currency strategist at Barclays Capital in New York.

Inspectors from the International Monetary Fund, the European Commission and the European Central Bank - known as the troika - concluded a visit to Greece, saying they would return in September to give their final verdict.

They said Greece has made progress in finding budget cuts needed to continue its bailout program but cautioned that more work is needed.

"The markets are embarking on hopes to see some progress on the European situation and that the ECB has stated a ... road map to support Spain and Italy. We are in an environment where it seems the U.S. economy is bottoming out," said Didier Duret, chief investment officer at ABN-AMRO Private Banking.

Wall Street rose to a three-month high in early afternoon trading, while European shares closed at their highest level in more than four months.

The MSCI World Index, which captures the world's biggest stock markets, was up 0.9 percent to its highest level since early May. The pan-European FTSEurofirst 300 ended up 0.4 percent at 1,085.79.

The Dow Jones industrial average gained 72.28 points, or 0.55 percent, at 13,168.45. The Standard & Poor's 500 Index was up 7.38 points, or 0.53 percent, at 1,398.37. The Nasdaq Composite Index was up 29.41 points, or 0.99 percent, at 2,997.31.

The benchmark 10-year U.S. Treasury note was 8/32 higher in price to yield 1.541 percent.

The euro zone's problems remain the focus for many major investors. The ECB promised last week to stabilize the bloc's bond markets but tensions remain as details of exactly how to achieve this have yet to be settled.

The euro last traded 0.2 percent higher at $1.2403, below a one-month peak of $1.2443 hit in Asian trade. Gains in the euro over the last two days were nearly 2 percent, its best two-day showing since late October.

Spanish and Italian bond prices rose further, led by revived demand for shorter-dated paper on prospects of eventual ECB buying.

Spanish 10-year yields fell 14 bps to 6.8 percent, retreating further from euro-era highs of 7.78 percent hit early last week, with equivalent Italian yields 6 bps lower at 6.0 percent. Two-year paper yielded 3.11 percent, down more than 20 bps on the day.

The ECB continued to keep a lid on its bond purchase program last week. The ECB has barely used the Securities Markets Program this year and has not bought any bonds in 21 weeks despite a severe intensification of the euro zone debt crisis.

Oil gained in thin, choppy trade, supported by higher equities but buffeted by ongoing turmoil in the Middle East.

In New York, crude recovered from early losses and was up 63 cents at $92.03 a barrel.