European stocks closed higher yesterday after seesawing wildly amid unsubstantiated rumours that Germany and France had a new plan for Greece and that China was in talks to buy Italian bonds.
In foreign exchange trade, the euro ended down slightly against the dollar at $1.3674 from $1.3680 on Monday. The dollar fell to 76.95 yen from 77.15 late on Monday.
“This is a market that is all over the map – literally – with headlines out of China, the US, and Europe in particular driving things,” said Patrick O’Hare, an analyst with Briefing .com in New York.
After much volatility, London’s FTSE-100 index of leading shares rose 0.87 per cent at 5,174.25 points. In Paris the CAC-40 gained 1.41 per cent to 2,894.93 points, while in Frankfurt the DAX jumped 1.85 per cent to 5,166.36 points. Elsewhere in Europe Milan gained 2.19 per cent, Madrid 2.53 per cent, Lisbon 0.63 per cent, Zurich 1.06 per cent and Brussels 0.83 per cent.
On Wall Street in early afternoon trade, the Dow Jones Industrial Average slipped 0.08 per cent to 11,052.11 points, the broader S&P 500 rose 0.24 per cent to 1165.09 points, while the tech-heavy Nasdaq Composite was up 0.53 per cent to 2508.30 points.
“Once again banking stocks in Europe have borne the brunt of selling and buying frenzies today, particularly in France where the big three banks continue to gyrate wildly over funding fears and conflicting reports about their solvency as well as a possible Greek default,” Michael Hewson of CMC Markets said.
Banking shares had led a morning plunge, but recovered in a big way. At the close, Société Générale climbed nearly 15.0 per cent, and BNP Paribas was up 7.20 per cent after earlier dropping 10 per cent.
Traders said stocks reversed course after a report that President Nicolas Sarkozy and Chancellor Angela Merkel have a new plan to relieve pressure on Greece over its massive sovereign debt.
But France and Germany denied the report, insisting there would be no new Franco-German plan “today”.
“Amongst such a fevered speculative backdrop one wonders where the next rumour will come from, and the market’s reaction to it,” Mr Hewson said.
Earlier Mrs Merkel sought to ease fears over a possible Greek bankruptcy that had sent European shares plummetting on Monday, saying that an “uncontrolled insolvency” must be avoided.
She stressed that the eurozone had to remain intact, hinting that if Greece were to leave the group, others would swiftly follow.
Italy meanwhile denied that it had asked China to buy its bonds to ease its soaring borrowing prices, admitting only that its Finance Minister had met with the head of Beijing’s largest sovereign fund in an effort to attract industrial investment.
Reports of the meeting late Monday had pushed up stocks on Wall Street, but then sent markets falling when unconfirmed rumours spread that China had refused the plea by Tremonti to buy Italian bonds. Amid the confusion, the long-term prices for Italian debt plummetted on the secondary markets with bond yields, which move inversely to price jumping in midday trade to 5.742 per cent, from 5.555 per cent on Monday.
Italy on Tuesday placed bonds worth close to €6.5 billion but the yield it had to offer reached a new high level, the Bank of Italy said, revealing a marked lack of investor confidence.
This came as Brazilian Finance Minister Guido Mantega said emerging economies which make up the BRICS group would discuss possible aid to the eurozone on the sidelines of annual International Monetary Fund and World Bank meetings next week.
Meanwhile on Monday US President Barack Obama said that Washington was “deeply engaged” with European nations on solving the eurozone crisis but that Europeans were going to have to come together to decide how to solve it.
“The bigger problem is what happens in Spain and Italy if the markets keep making a run at those very big countries,” he said.
A monthly survey by global bank BofA Merrill Lynch found that European fund managers expect Europe to sink into recession over the next year and that European banks posed a global risk amid the sovereign debt crisis.
“The survey shows that sentiment on Europe is now so negative that contagion risk to the rest of the world has risen significantly,” Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research said.