Europe’s stock markets and the euro rallied yesterday boosted by a newspaper report that EU leaders were close to massively increasing their bailout fund for troubled eurozone economies.
But a downgrade of Spain’s credit rating tempered the mood and reports the German government is slashing its 2012 growth forecast, in the run up to a EU summit set to centre on the debt crisis starting tomorrow.
London’s FTSE 100 index of top shares closed up 0.74 per cent to 5,450.49, despite the Bank of England saying it expected no pick-up for Britain’s stalled economy in the current fourth quarter.
Frankfurt’s DAX 30 gained 0.61 per cent to 5,913.53 points despite reports that the government will today slash its 2012 growth forecast to 1.0 per cent from 1.8 per cent.
In Paris the CAC 40 won 0.52 per cent to 3,157.34 points.
Milan jumped 2.02 per cent and Madrid gained 0.43 per cent desp notch downgrade by Moody’s to A1 from Aa2, which further cited risks to the Spanish economy from the eurozone crisis.
In foreign exchange deals, the European single currency soared as high as $1.3857, then slid back to 1.3775 in late London trade, but still up from $1.3752 late in New York on Tuesday.
The dollar treaded water against the Japanese currency, trading at 76.80 compared to 76.81 late on Tuesday.
Markets took their lead from a report in a British newspaper that France and Germany had agreed to more than quadruple the European Financial Stability Facility (EFSF) bailout fund.
Citing unnamed European Union diplomats, The Guardian said the eurozone’s two biggest economies would boost the rescue fund to two trillion euros ($2.7 trillion) from its current €440 billion.
If correct, the news would be a massive boost to markets as dealers have for months been concerned that Europe did not have sufficient funds if Spain or Italy run into trouble.
EU leaders are under intense pressure to agree on a blueprint for a solution to the debt crisis, which has ravaged the eurozone and threatens to stall global growth, when they meet this weekend for a summit in Brussels.