Stocks and euro higher as investors ignore bad news

European stock markets closed with solid gains and the euro firmed yesterday as investors looked past the litany of bad news and sought out value in a technical rebound.

Dealers said that after recent heavy losses it is possible the markets have priced in the worst – more unrest in the Arab world pushing up oil prices and the huge reconstruction cost after Japan’s earthquake.

The fall of the Portuguese government on Wednesday and the increasing likelihood Lisbon will need to seek a debt rescue from the EU-IMF, like Greece and Ireland last year, also seems to have been taken into account, they said.

Some analysts suggested however that the markets were being complacent, underestimating such problems which remain far from resolved.

Share price gains were substantial.

In London, the FTSE 100 index of leading shares closed up 1.47 per cent at 5,880.87 points. In Paris, the CAC 40 gained 1.41 per cent to 3,968.84 points and in Frankfurt the DAX jumped 1.90 per cent to 6,933.58 points.

Belying the apparent confidence in the stock markets, gold hit a record high as investors looked for safety, dealers said.

Gold was at $1,447.82 per ounce in afternoon trade while silver jumped to $38.16 an ounce, its highest level since February 1980.

“Gold and silver are justifying their reputation as safe havens, which is hardly surprising in the current climate,” Commerzbank analyst Carsten Fritsch said in a research note.

“In addition to the war in Libya, the unrest in the Arab region and the disaster in Japan, the debt crisis in eurozone periphery countries has also returned with a vengeance to the centre of market interest.”

Will Hedden, sales trader at IG Index, said the stock markets appeared not to be too concerned about Portugal, where they consider a bailout inevitable.

“Equity markets across Europe and the US seem to have already priced this in before the outbreak of the Japanese and Libyan crises, hence why they continue to head towards pre-crisis levels,” Hedden said.

CMC Markets analyst Michael Hewson warned against complacency, noting that the “banking sector is up today which seems strange given the problems with Portugal and the downgrade of Spanish banks by Moody’s.

“I think the market is being complacent about a resolution or an agreement on a debt management solution at (a two-day EU summit in Brussels), given the competing political factors pulling on European politicians.”

The Lisbon stock market gained 1.12 per cent, not to be outdone by its European peers after shrugging off an additional negative in the shape of a Fitch two-notch ratings downgrade.

The euro meanwhile was at $1.4184, up from $1.4083 in New York late Wednesday while the dollar was little changed at 80.92 yen after 80.94 yen.

“The markets anticipated the Portuguese parliament’s decision to reject the austerity plans and priced it in accordingly,” said ETX Capital trader Anita Paluch.

Jane Foley at Rabobank said it was unlikely that EU leaders will deliver the comprehensive debt management accord which the markets believe is needed to resolve a deepseated eurozone crisis.

In New York, stocks also advanced despite mixed data on the economy showing a slow improvement on the jobs front but still-weak manufacturing.

The blue-chip Dow Jones Industrial Average was up 0.59 per cent at around 1730 GMT and the tech-heavy Nasdaq Composite rose 1.11 per cent.

The market appeared to shrug off negative news, analysts at Briefing.com said. “The hits keep coming, yet the US stock market is still standing.”

In Asian trade earlier yesterday, Tokyo closed down 0.15 per cent, giving up early gains after news of fresh problems at the badly damaged Fukushima nuclear power plant.

Hong Kong gained 0.39 per cent, Shanghai was flat and Sydney rose 1.01 per cent.