European stock markets rallied yesterday after a successful Spanish bond auction eased concerns over the eurozone debt crisis and an upbeat IMF outlook on the world economy, traders said.
Madrid must be breathing a sigh of relief – it has avoided a catastrophic failed auction
At the close, London’s benchmark FTSE 100 index of top companies was up 1.78 per cent at 5,766.95 points.
In Frankfurt, the DAX 30 rallied 2.65 per cent to 6,801 points and in Paris the CAC 40 jumped 2.72 per cent to 3,292.51 points.
Elsewhere, Milan soared 3.68 per cent driven by banking shares, Madrid rose 2.28 per cent, Zurich 1.23 per cent and Amsterdam 2.34 per cent.
In foreign exchange trading, the European single currency slipped to $1.3136 from $1.3143 late in New York on Monday. The dollar rose to 80.71 Japanese yen from 80.39 yen.
At around 1600 GMT, US stocks had also jumped higher with the Dow Jones Industrial Average up 1.30 per cent, the broader S&P 500 advancing 1.32 per cent and the Nasdaq rising 1.58 per cent.
Before the opening bell on Wall Street, better-than-expected earnings reports from major companies such as Goldman Sachs, Coca-Cola and Johnson & Johnson helped give sentiment a boost.
European markets built on earlier gains after the International Monetary Fund hiked its global growth forecasts for this year and next to 3.5 per cent and 4.1 per cent in 2013.
New signs of a gradual global pick-up emerged in the first three months of the year, the IMF said, thanks in part to improved global financial conditions and easing fears about the eurozone debt crisis.
The report came as Spain succeeded in raising a higher-than-targeted €3.18 billion in 12- and 18-month bonds, albeit at a high price.
“Madrid must be breathing a sigh of relief – it has avoided a catastrophic failed auction for another day,” said analyst Kathleen Brooks at trading site Forex.com.
“It managed to sell 12- and 18-month debt with relative ease today. However, the stronger demand was driven by a sharp increase in bond yields.”
When compared to a similar auction on March 20, the rate on the 12-month debt soared to 2.623 per cent from 1.418 per cent, and the rate on 18-month debt jumped to 3.110 per cent from 1.711 per cent.
The debt sale was the first of two major tests of waning market confidence in Spain this week, with the state hoping to raise up to €2.5 billion in an auction of benchmark 10-year government debt tomorrow.
Chris Beauchamp, an analyst at IG Index trading group, said investors were now eagerly awaiting other European bond auctions later in the week.
“Investors will have to wait until Thursday for a more concrete gauge of sentiment, when Spain sells longer-term bonds and France also conducts an auction ahead of the first round of its presidential election,” he said.
Sentiment was also boosted yesterday by data showing that German investor confidence rose, unexpectedly, for the fifth month in a row.
The ZEW think tank’s economic expectations index edged up by 1.1 points in April to stand at 23.4 points, it said in a statement.
The figures defied market expectations for a drop due to concerns about the debt crisis and rising raw material prices.
Back in Madrid, Spanish oil giant Repsol saw its share price plummet by more than eight per cent in morning deals after Argentina said it would nationalise the group’s subsidiary YPF.
The stock closed at €16.42, down 6.06 per cent.
Argentinian President Cristina Kirchner rejected warnings from Madrid and announced on Monday that her government would take over most of Repsol’s 57.4 per cent stake in YPF.
The national and regional Argentinian governments are to own 51 per cent of YPF, which is the country’s biggest oil company.
Repsol has said it will take all possible legal measures to fight the Argentinian decision, which Repsol charged “violates the most fundamental principles of judicial security.”