European stock markets rallied yesterday on strong bank shares, and the euro gained against the dollar as investors hoped for a firm outcome to a Greece debt deal following an upbeat German bond auction.
Markets, especially oil, also reacted to news that the EU would slap sanctions on Iranian oil exports.
At the close of European trade, the Paris CAC 40 had climbed 0.51 per cent to 3,338.43 points, Frankfurt’s DAX 30 won 0.50 per cent to 6,436.62 points and London’s FTSE 100 advanced 0.94 per cent to 5,782.56 points. Madrid rose 0.67 per cent and Milan 1.76 per cent.
The euro rose to $1.3035 in afternoon trading from $1.2933 on Friday in New York, breaking above the $1.30 level for the first time since January 4.
After an hour of trading on Wall Street, the Dow Jones Industrial Average was up 0.18 per cent to 12,743.14 points. The tech-rich Nasdaq Composite added 0.35 per cent to 2,796.53 points while the broad-based S&P 500 advanced 0.34 per cent to 1,319.86 points.
“The pick-up in risk appetite continues, said Jerome Vinerier at IG Markets in Paris. “Investors are attracted by cyclical and banking sectors again.”
Ahead of an EU finance ministers meeting in Brussels, Germany attracted solid demand at a sale of one-year debt yesterday.
The ultra-low rate of 0.07 per cent that Berlin benefitted from nonetheless suggested that investors still sought safe havens as the debt crisis ground on.
The auction was the latest in a series of debt sales that has given European capitals cheer despite this month’s downgrade of nine nations’ credit ratings by Standard and Poor’s.
France, which lost its S&P triple-A rating, was still able to raise €8.2 billion in short-term debt at lower interest rates last week.
But worries over Greece fail to go away, while a deal on restructuring the country’s debt now seems to rest with the European Union, International Monetary Fund and European Central Bank.
Charles Dallara, chief negotiator for the Institute of International Finance (IIF), the group representing private lenders, said banks had offered the “maximum” they were prepared to lose in a “voluntary” bond-swap deal.
The focus of disagreement has been the interest rate on new bonds that private investors would receive as part of the debt exchange, with the two sides reportedly talking around a range of 3.0-4.35 per cent.
Negotiations on cutting around €100 billion from Greece’s massive debt of more €350 billion were adjourned Friday.
But EU commissioner Olli Rehn said yesterday that he was optimistic the talks could be wrapped up this week.
Meanwhile, IMF head Christine Lagarde identified a raft of proposals to fight the eurozone crisis, including a bigger EU rescue fund, lower ECB rates and the creations of eurobonds as she warned of dimmer world growth prospects.
“We need a larger firewall,” Lagarde added. “Without it, countries like Italy and Spain that are fundamentally able to repay their debts could be forced into a solvency crisis by abnormal financing costs.”
German Chancellor Angela Merkel rebuffed the call to increase bailout funds, however.
Elsewhere yesterday, oil prices rose after the European Union agreed to slap an embargo against Iran’s crude exports, in a move aimed at stopping the key oil producer from funding its disputed nuclear programme.
Brent North Sea crude for delivery in March climbed $1.17 to $111.03 a barrel in late afternoon London trading after the widely-expected move by the EU.