European stocks closed sharply higher and the euro got a boost yesterday after a series of strong US and German economic data helped ease concerns over the eurozone debt crisis.
Dealers said much better-than-expected German confidence figures provided early support, helped along by a positive Spanish government debt sale which saw Madrid’s borrowing costs fall sharply.
News of a sharp spike in US new housing starts, a key indicator of confidence in the hugely important property market, then drove Wall Street higher, taking the European markets with it.
The euro, on the defensive as the eurozone debt crisis saps support, jumped on the Spanish lead and reports that the Greek government was making progress in talks with private banks on writing down a large part of its debt mountain.
In London, the FTSE 100 index of top companies closed up 1.02 per cent at 5,419.60 points. In Paris, the CAC-40 gained 2.73 per cent at 3,055.39 points and in Frankfurt the DAX 30 jumped 3.11 per cent to 5,847.03 points.
Madrid added 2.44 per cent and Milan rose 2.87 per cent.
In New York, the market opened sharply higher and the blue-chip Dow Jones Industrial Average was ahead 2.40 per cent at around 1650 GMT while the tech-heavy Nasdaq Composite gained 2.90 per cent.
In foreign exchange deals, the euro was firmer at $1.3067 in late afternoon trade, up from $1.2996 in New York on Monday.
Shares rose “after a successful Spanish bond auction and a better than expected German Ifo survey,” said Joshua Raymond, chief market strategist at the City Index trading group.
The Ifo economic institute said it was bringing “good tidings” after its closely watched business sentiment index defied analyst expectations for a second month in a row and rose to 107.2 in December from 106.6 in November.
Analysts had been projecting a fall to about 106 points.
A separate survey showed that German consumer confidence was holding up as rising employment and incomes helped to offset recession fears driven by concern over the eurozone debt crisis.
Postbank analyst Heinrich Bayer said the surprise up-tick in the Ifo index “can no longer be seen simply as a one-off. It may actually mark a turnaround.”
The fallout from the crisis “will not be as bad as feared,” Mr Bayer said. “The German economy will scrape past recession this winter and expansionary forces will gain the upper hand again in the spring.”
In Madrid, Spain raised €5.64 billion in an auction of short-term debt, raising more money than first planned and at sharply lower rates.
Spain had originally planned to sell €3.5 to €4.5 billion in three- and six-month bills in yesterday’s auction. Rates fell dramatically from the last comparable auction last month, a sign of easing market tensions.
Dealers said there also seemed to be a more positive tone on eurozone debt crisis development as the bloc agreed on Monday to lend €150 billion to the International Monetary Fund for use in stabilising the single currency area.
Officials said they hoped to get to €200 billion, the amount agreed at a December 9 EU summit, but this would require some negotiation and accommodation with Britain which is not prepared to put up its share just yet.
Asian stock markets meanwhile closed mixed yesterday as initial concerns about regional tensions after the death of North Korea’s Kim Jong-Il subsided.
With attention turning to the leadership succession in Pyongyang, markets were relieved that there seemed to be no internal turmoil in the nuclear-armed state, providing dealers an opportunity to pick up cheap stocks.
Seoul, which tumbled 3.4 per cent on Monday, rose 0.91 per cent yesterday.