Markets rally as France, Spain clear bond hurdle

By Pan Pylas

Associated Press

Published: Thursday, Jan. 19 2012 10:05 a.m. MST

CORRECTS CURRENCY TO EURO AGAINST YEN - Passers-by are reflected on an electronic stock board displaying the euro's quotation against the Japanese yen at a securities firm in Tokyo, Tuesday, Jan 17, 2012.

Koji Sasahara, Associated Press

Enlarge photo»

LONDON — Another set of successful bond auctions in Europe and renewed confidence in the continent's banks helped markets rally Thursday as investors awaited developments in Greece's debt-reduction talks with private creditors.

Strong bank earnings out of the U.S. from Bank of America and Morgan Stanley, as well as a bigger reduction in weekly U.S. jobless claims, helped to shore up sentiment even further as Wall Street trading began.

European banks, including those considered particularly susceptible to a further outbreak of unease in Europe, such as France's Societe Generale and Italy's UniCredit, were further buoyed by the news that Germany's second-largest bank, Commerzbank AG, won't need help from shareholders or the government to boost its capital base.

The mood in financial markets has been fairly upbeat over the past couple of weeks and much of the optimism stems from a growing sense that Europe's debt crisis, though not solved by any means, has stabilized to an extent.

The ability of France and Spain to tap investors for money at what were largely affordable rates, in spite of last week's downgrade of their credit ratings by Standard & Poor's, reinforced that view.

"European developments are once again at the forefront, with today's European debt auctions proceeding smoothly," said Nick Bennenbroek, an analyst at Wells Fargo Bank.

France's CAC-40 closed 2 percent higher at 3,328.94 while Germany's DAX rose 1 percent to 6,416.26. The FTSE 100 index of leading British shares ended 0.7 percent higher at 5,741.15.

The recent easing in concerns over Europe's debt crisis has helped the euro clamber off Monday's 17-month low against the dollar below $1.27. By late afternoon in Europe it was trading at $1.2940, up 0.6 percent on the day.

In the U.S., the Dow Jones industrial average was up 0.2 percent at 12,607.56 while the broader Standard & Poor's 500 index rose 0.5 percent to 1,314.70.

The recent optimism could all disappear though if Greece fails to successfully conclude its debt-reduction negotiations with the Institute of International Finance, which represents private sector bondholders. Talks are set to continue later, having restarted Wednesday.

Greece needs to clinch the agreement quickly to qualify for more bailout loans before it faces a major bond repayment on March 20. Without the money, the country would find it difficult to service its debts and be forced to default, potentially triggering more turmoil in global markets.

Last October, Greece's partners in the eurozone sanctioned a deal whereby Greece's creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country's debt burden. The deal with private investors aims to reduce Greece's debt by €100 billion ($127.9 billion) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a €130 billion international bailout, the second one for Greece.

Hopes that a deal is being thrashed out has helped shore up sentiment in markets in recent days as has the IMF's revelation that it aims to raise up to $500 billion to meet its $1 trillion financing needs in coming years. The new money to be raised includes $200 billion that European countries recently agreed to hand the IMF.

Earlier in Asia, Japan's Nikkei 225 index rose 1 percent to close at 8,639.68. South Korea's Kospi rebounded 1.2 percent to 1,914.97 after a losing session Wednesday. Hong Kong's Hang Seng rose 1.3 percent at 19,942.95.

Oil prices tracked equities higher — benchmark oil for February delivery was up 71 cents to $101.30 per barrel in electronic trading on the New York Mercantile Exchange.

Pamela Sampson in Bangkok contributed to this report.

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