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Global stocks choppy on Spain downgrade, Greek optimism

World stock markets were mixed in choppy trade yesterday with Spain’s borrowing costs rising to a euro-era record, following a ratings down-grade tempered by a bout of optimism about Greek elections.

European stocks moved lower following losses in Asia, but several staged late rallies to close in positive territory including in Athens, which jumped more than 10 per cent on hopes voters will elect a coalition on Sunday that will keep it in the euro.

London’s benchmark FTSE 100 index dropped 0.31 per cent to 5,467.05 points and in Frankfurt the DAX 30 shed 0.23 per cent to 6,138.61 points, but in Paris the CAC 40 bucked the trend to add 0.08 per cent to 3,032.45 points.

Milan jumped 1.47 per cent and Madrid gained 1.22 per cent despite the turmoil in the bonds markets. In foreign exchange deals, the euro rose to $1.2612 from $1.2556 late on Wednesday in New York. The dollar fell to 79.28 yen from 79.46 yen.

Spain’s borrowing costs reached new, dangerous highs near 7.0 per cent as a bailout loan of up to €100 billion to salvage the nation’s stricken banks fell flat after a brief initial positive welcome.

“The rout in Spanish bonds continues relentlessly, as Madrid’s borrowing costs move ever higher and ever closer to the dangerous seven per cent level,” said Chris Beauchamp, a market analyst at trading group IG Index.

Meanwhile, Greek shares soared more than 10 per cent on speculation that voters will elect a government committed to austerity policies key to it receiving further bailout aid and staying in the euro. Analysts at IG markets said most investors were staying on the sidelines until after the Greeks vote, leading to higher volatility.

“Investors were nevertheless a little more optimistic than at the beginning of the session in a market fuelled on rumours hopeful that a pro-austerity government will be elected,” they added.

The interest rate on Spanish 10-year government bonds soared to just under 7.0 per cent to their highest since the birth of the single currency and were up sharply from 6.721 per cent on Wednesday.

Neil MacKinnon, an economist at financial group VTB Capital, said a level of 7.0 per cent was “considered by the markets to be a tipping point which eventually increases the prospect of a government bailout.”

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