A stocks and euro rally on news Spain will get up to €100 billion in eurozone loans for its troubled banks fizzled out yesterday, with Spanish and Italian borrowing costs rising further.
After posting solid gains early in the day, London’s FTSE 100 index closed essentially unchanged at 5,423.37 points, Frankfurt’s DAX 30 edged up by 0.17 per cent to 6,141.05 points and the French CAC 40 fell by 0.27 per cent to 3,042.76 points.
Madrid’s IBEX 35 advanced almost six per cent in early trade, but gave it all back to close down 0.54 per cent at 6,516.4 points, while in Milan the FTSE MIB index was the biggest loser, down 2.79 per cent at 13,071 points.
The euro initially rallied to $1.2671 – its highest level since May 23 – in Asian trade. But Europe’s single currency later stood at $1.2505, down from $1.2514 late on Friday.
Asian equities had rebounded sharply earlier in the day, with Tokyo up 1.96 per cent and Hong Kong 2.44 per cent higher.
“The markets have whimpered to the finish line today after a bout of knee jerk euphoria post the announcement of the Spanish banking bailout,” said Kathleen Brooks at Forex.com.
She said “the markets haven’t perceived the bailout as a way to reduce credit risk in the periphery,” with investors concerned their claims may be lower down the pecking order in the event of a Spanish default.
“Also relief concerning Spain’s banking rescue could be rather short lived with Greek elections now less than a week away and expected to take centre stage once again very soon,” commented analyst Markus Huber at ETX Capital.
It looked like Italy might become a target of speculation as the yield on 10-year Italian bonds briefly broke above the market-critical level of six per cent in late European trading. In New York, the Dow Jones Industrial Average dipped after initially showing gains, and was off by 0.23 per cent to 12,525.78 points in midday trading.
The broad-market S&P 500 was down 0.28 per cent to 1,321.90, while the tech-rich Nasdaq Composite edged 0.23 per cent lower to 2,851.87.
Markets had gotten an early boost after eurozone finance ministers on Saturday threw Spain a lifeline to save its stricken banks amid efforts to avert a broader financial catastrophe.
Spanish Economy Minister Luis de Guindos insisted the handout was not a rescue but a loan that imposes conditions on the banks.
The nation’s borrowing costs fell early yesterday, but later bounced higher as the funds will raise Spain’s debt and investors began to ponder the consequences.
Spanish 10-year government bonds yields initially tumbled to 6.017 per cent but then jumped back to 6.487 per cent, a level widely considered unsustainable in the medium-term.