European shares gain on report of progress for Spain

European stock markets chalked up strong gains yesterday and the euro hit $1.30 on fresh hopes that Spain will ask for some sort of aid and improved sentiment regarding Greece, traders said.

A senior Spanish official said late on Monday that Madrid was mulling a request for a line of credit from the EU’s new bailout fund, the European Stability Mechanism (ESM), the Wall Street Journal reported.

London’s benchmark FTSE 100 index of top companies jumped the next day by 1.12 per cent to close at 5,870.54 points. Frankfurt’s DAX 30 gained 1.58 per cent to 7,376.27 points, as data showed that investor sentiment in Germany rose for the second month in a row during October. In Paris, the CAC 40 leapt by 2.36 per cent to 3,500.94 points, while Madrid’s IBEX 35 index shot up by 3.41 percent to 7,940.20.

“The latest headlines from Madrid imply that a formal request for aid is inevitable,” said Ashraf Laidi, chief global strategist at City Index.

“Whether it takes the form of ‘applying’ for a credit line under the €500 billion European Stability Mechanism (but not necessarily tapping it), or a full-fledged activation of the ESM, Spain is intending to stabilise market sentiment without triggering the Outright Market Transactions,” he added.

OMTs are the European Central Bank’s latest heavy weapon against assaults on sovereign debt rates and Spain is keen to show it can pull through the debt crisis without a full-fledged bailout.

The yield on Spanish 10-year bonds on the secondary market dipped to 5.803 per cent yesterday from 5.815 per cent on Monday.

In foreign exchange trading, the euro climbed to $1.3039 from $1.2950 late in New York on Monday. Gold prices advanced to $1,746.50 an ounce on the London Bullion Market from $1,736 an ounce on Monday.

“On-going optimism that Spain will request EU (bailout) assistance at some point should keep the euro supported against the dollar,” said Lloyds Bank analyst Adrian Schmidt.

In New York, the Dow Jones Industrial Average was up 0.87 per cent in midday trading, while the broad-based S&P 500 rose 0.88 per cent and the tech-rich Nasdaq added 0.98 per cent.