European stocks close higher as eurozone debt worries ease

European stock markets closed higher yesterday as eurozone debt worries were eased by a successful Portuguese bond auction and record economic growth figures for Germany, dealers said.

They said that after weeks of doubt over whether Lisbon could raise fresh cash from the money markets, its bond sale proved that could – if at a price which might not be sustainable over the long-term.

That was enough, however, to ease immediate concerns that Portugal would need an EU-IMF bailout, after Greece and Ireland last year, with investors happy to go along with the relief rally.

Record German 2010 growth – 3.6 per cent after a contraction of 4.7 per cent in 2009 – supported hopes that Europe’s largest economy will provide enough momentum to keep the EU afloat while it puts its financial house in order.

Gains in some weaker eurozone countries were substantial – Lisbon put on 2.59 per cent and Madrid, seen as most at risk if Portugal needs to be bailed out, soared 5.42 per cent, while Milan jumped 3.82 per cent.

In London, the FTSE 100 index of leading shares closed up 0.61 per cent to 6,050.72 points. In Paris, the CAC 40 jumped 2.15 per cent to 3,945.07 points and in Frankfurt the DAX rose 1.83 per cent to 7,068.78 points.

Portugal paid lower rates on long-term debt yesterday as it raised €1.25 billion in a critical test for its credibility and that of the wider eurozone in the financial markets.

The Portuguese debt agency said the yield or the rate of return for investors in the bonds maturing in June 2020 came in at 6.716 per cent, down from 6.806 per cent at a similar sale in November.

However, on the bonds maturing October 2014 which were also offered, the yield jumped to 5.396 per cent, up sharply from the 4.041 per cent paid in November – suggesting the short-term outlook was more guarded.

“The Portuguese auction was well received,” RIA Capital Markets analyst Nick Stamenkovic said.

“Not only did the Portuguese Treasury get away the maximum amount planned but the yield was lower than November. This should prompt a relief rally for Portuguese sovereign bonds.”