World stocks soar on eurozone debt hopes

Global stocks rallied for a second day running yesterday with huge advances in Europe on belief without much evidence that leaders are preparing a major response to the eurozone debt crisis.

The euro also rose against the dollar as Greek Prime Minister George Papandreou insisted Greeks were making a “superhuman” effort to keep on top of the crisis and German Chancellor Angela Merkel said cutting debt was the only way forward.

Only France let slip signs of a new plan to end the crisis with Prime Minister Francois Fillon saying any announcement would be made after Germany’s parliament approves boosting the eurozone rescue fund in a vote on Thursday.

In afternoon deals in London, the euro rose to $1.3610 from $1.3523 in New York late Monday. The dollar rose to 76.58 yen after 76.42 yen on Monday.

European shares rallied, with Paris CAC-40 index soaring 5.74 per cent. Frankfurt’s DAX jumped 5.3 per cent and London’s FTSE-100 index climbed 4.2 per cent.

Other European markets posted similarly strong gains, with Milan winning 4.9 per cent, Madrid 4.03 per cent, Amsterdam 4.52 per cent, Vienna 5.66 per cent, Swiss stocks 3.03 per cent and Lisbon 2.99 per cent.

On Wall Street, the Dow Jones Industrial Average leaped 2.33 per cent to 11,300.77 in midday trading. The broader S&P 500 rose 2.32 per cent to 1,189.97, while the tech-heavy Nasdaq Composite gained 2.24 per cent to 2,572.94.

Asian equities rebounded on bargain-buying after recent heavy selling but traders remained cautious because of mixed messages from EU leaders, analysts said.

Tokyo closed up 2.82 per cent, Hong Kong rocketed 4.15 per cent and Sydney advanced 3.64 per cent.

In Europe, banking shares led the charge higher, with BNP Paribas and Société Générale rocketing more than 14.0 per cent in Paris on anticipation of a recapitalisation plan for French lenders and reports of upcoming expanded financing from the European Central Bank.

But several leaders dismissed talk of boosting the eurozone rescue fund to two trillion euros. German finance minister Wolfgang Schaeuble called the talk “silly” and Spain said the idea was “not on the table”.

CMC Markets analyst Michael Hewson said: “European leaders continue to differ about final resolutions but with the (EU/IMF auditors) set to return to Athens and the Greek parliament set to pass the new austerity measures it seems likely that Greece will receive its next eight billion euro aid tranche, which could well defer the next stages of the crisis for another few weeks.”

“Obstacles still remain, especially constitutional ones, with a vote on extensions to the powers of the EFSF in the Bundestag due on Thursday,” Mr Hewson added.

As Slovenia became the ninth eurozone nation to approve the boost to the European Financial Stability Facility (EFSF), borrowing rates for Italy and Spain spiked to the highest levels since the 2008 global financial crisis amid concern their economies, the third and fourth-biggest in the eurozone, could be sucked into a debt spiral.

In its first bond auction since its credit rating was downgraded by Standard & Poor’s last week, the Italian Treasury was forced to offer sharply higher rates to attract investors to buy up €14.5 billion in debt. The rate on six-month bonds jumped to 3.071 per cent compared to 2.14 per cent for a similar operation last month.

“There has been no concrete alteration in the structure of the eurozone since the end of last week but the market has been willing to clutch at the idea that politicians at least recognise there is an urgent requirement for action,” said Rabobank analyst Jane Foley.

“Further delays in a solution to the crisis are almost inevitable suggesting that the euro is far from out of the woods,” she added.

US President Barack Obama warned on Monday problems in Europe were “compounded with what’s happening in Greece”.