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Upbeat US data buoys markets amid Irish debt fears

By Pan Pylas

Associated Press

Published: Monday, Nov. 15 2010 9:50 a.m. MST

LONDON — Surprisingly strong U.S. retail sales figures helped shore up sentiment in stock markets Monday despite ongoing uncertainty about whether Ireland will end up having to tap an EU rescue fund as it tries to get a handle on its escalating debt crisis.

In Europe, the FTSE 100 index of leading British shares closed up 23.54 points, or 0.4 percent, at 5,820.41 while the CAC-40 in France rose 33.12 points, or 0.9 percent, to 3,864.24. Germany's DAX ended 55.56 points, or 0.8 percent, higher at 6,790.17.

In the U.S., the Dow Jones industrial average was up 56.27 points, or 0.5 percent, at 11,248.85 around midday New York time while the broader Standard & Poor's 500 index rose 5.29 points, or 0.4 percent, to 1,204.50.

Optimism increased after government figures showing that retail sales rose 1.2 percent in October largely thanks to a recovery in auto sales. The increase was double market expectations and the highest since March.

"While this is hardly earth shattering news, it could have been worse, and investors seem happy for the excuse to start shaking off negativity that has recently dogged sentiment," said David Jones, chief market strategist at IG Index.

The retail sales news helped provide some respite from conflicting reports over whether Ireland will have to look for outside help to manage its mounting debt difficulties. Including the costs of the bailout of the banks, the country's budget deficit is set to hit a staggering 32 percent of national income this year alone, a postwar record in Europe.

Expectations it will soon have no choice has helped Irish government bonds to rally and supported stocks in Dublin — the country's main ISEQ index was up 0.6 percent with an hour to go of Monday's session.

The Irish government has admitted it is in talks with European officials to discuss its debt position and all eyes are likely to shift towards Brussels Tuesday, when the finance ministers of the 16 countries of the eurozone meet — a number of investors think that could be the forum where a bailout is formallyl agreed on.

Though Irish authorities have claimed they have made no application to tap a financial support fund set up after the bailout of Greece in May and continue to insist that they don't need any more money until June, there's a growing consensus in the markets that the country will have no choice but to request assistance.

The bailout cash could potentially go straight to Ireland's troubled banks, as opposed to the government, a view supported in reported comments by the ECB's vice president Vitor Constancio.

What's really worrying for EU policymakers as well as investors, particularly in the currency markets, is that Ireland's problems may spill over to other countries on the so-called periphery of the eurozone, notably Spain and Portugal.

"The euro continues to feel the weight of market suspicion surrounding the entire plight of peripheral governments," said Andrew Wilkinson, senior market analyst at Interactive Brokers.

By late afternoon London time, the single currency was down 0.8 percent on the day at $1.3605.

Aside from Ireland, investors will be keeping a close watch on developments elsewhere in Greece and Portugal, whose governments are due to present their budgets for 2011 this week.

Greece was in the spotlight again Monday after the EU's statistics office Eurostat revealed that the 2009 budget deficit was nearly two percentage points higher than previously predicted at 15.4 percent of gross domestic product.

More important to investors was the fact that Greece's governing Socialists emerged the winner of local government elections despite the big austerity measures it is pursuing.

The results come as an EU-IMF team visits Athens to assess the country's progress in meeting its debt reduction obligations and whether the country should receive its third installment of the bailout package.

Earlier in Asia, China's Shanghai Composite Index gained 1 percent to 3,014.41 after tumbling more than 5 percent Friday on expectations Beijing will raise interest rates.

Hong Kong's Hang Seng shed 0.8 percent, South Korea's Kospi gained less than 0.1 percent to and Australia's S&P/ASX 200 dropped 0.1 percent.

Japan's Nikkei 225 stock average rose 1.1 percent to 9,827.51 as the yen continued to weaken to the relief of the country's major exporters. Sentiment was also buoyed by the news that the Japanese economy grew by an annualized 3.9 percent in the third quarter of the year, more than double the previous quarter's 1.8 percent and way ahead of analysts' expectations for a 2.6 percent increase.

By late afternoon London time, the dollar was 0.5 percent higher on the day at 82.86 yen.

Benchmark oil for December delivery was up 16 cents at $85.04 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $2.93, or 3.3 percent, to settle at $84.88 on Friday.

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