European stock markets closed higher yesterday as an EU summit gave the all clear on the latest Greek bailout accord and borrowing costs for Italy and Spain fell sharply.
Dealers said Wednesday’s massive European Central Bank liquidity injection of nearly €530 billion gave Spain and Italy an immediate boost in the shape of much lower borrowing costs.
News that the International Swaps and Derivatives Association had determined that a Greek private creditor debt swap – part of the wider bailout – was not a “credit event” and so would not trigger insurance contracts came as a relief.
There had been concerns that if the deal justified the invoking of “credit default swap” contracts, holders of Greek government bonds might have been able to claim compensation, threatening the wider bailout accord.
Dealers said sentiment also got a boost after Federal Reserve chairman Ben Bernanke downplayed the need for fresh US stimulus measures, suggesting the US economy was doing well enough for the moment.
The latest data appeared to support that view, with new claims for US unemployment benefits falling slightly last week, adding to evidence of a continued improvement in the troubled labour market.
In marked contrast, European employment figures were bad; adding to evidence the economy there is slowing while inflation remained stubbornly above target.
In London, the benchmark FTSE 100 index of top companies closed up 1.02 per cent at 5,931.25 points. In Frankfurt, the DAX 30 gained 1.25 per cent to 6,941.77 points and in Paris the CAC 40 jumped 1.37 per cent to 3,499.73 points.
Madrid gained 0.97 per cent while Milan jumped 2.93 per cent.
The European single currency was little changed at $1.3323 after $1.3325 in New York late Wednesday.
Gold was recovering some lost ground at $1,714 an ounce after tumbling five per cent Wednesday as Bernanke’s comments on the economic outlook reassured investors.
In New York, stocks were firmer on the latest jobless claims report and the positive news on the bond market developments for Italy and Spain.
The blue-chip Dow Jones Industrial Average up 0.36 per cent as the tech-rich Nasdaq Composite added 0.65 per cent at around 1700 GMT.
“Overall, the (claims) report was again positive, and along with other labour market data, the broader improvement in the labour market is becoming more convincing,” said Troy Davig at Barclays.
“Sentiment is being lifted by some successful debt auctions in Spain and France, as well as the announcement that Greece’s debt restructuring agreement did not trigger a credit event,” Charles Schwab analysts said.
In Brussels, European Union leaders were focussing on how to kickstart growth to combat this year’s expected mild recession as the Greek debt crisis appeared to be finally coming under control.