European equities rebounded sharply yesterday, lifted by rising optimism over the latest news from Greece’s ongoing debt crisis.
Traders were increasingly confident that Greece’s embattled government would survive a late-night confidence vote yesterday that should pave the way for a package of reforms vital to stave off chaos across the eurozone and global markets.
Stocks were also pushed by bargain-hunting following Monday’s sharp drops and the energy sector after BP struck a deal to settle potential claims linked to the US Gulf of Mexico oil disaster.
At closing, London’s benchmark FTSE 100 index of top shares climbed 1.44 percent to finish the day at 5,775.31 points.
In Frankfurt, the DAX gained 1.89 per cent to 7,285.51 points while in Paris the CAC 40 rose 2.04 per cent at 3,877.07 points.
Traders hoped that a victory yesterday night’s parliament vote would mean that Prime Minister George Papandreou, who has staked his career on Greece’s economic recovery, would then get backing for vital austerity cuts and privatisations in a separate parliamentary vote next week.
“The market is resolutely optimistic, banking on that Greek parliamentarians will vote overwhelmingly their confidence in the government,” said Arnaud de Champvallier of Turgot Asset Management in Paris.
“If for some reason that doesn’t happen, the hangover will be very severe,” he said.
US indicators also played their role yesterday. Purchases of existing homes fell 3.8 per cent to a 4.81 million annual pace last month, a smaller than expected drop.
But crucially, investors had their eyes on the Federal Reserve’s policy-setting body that began a two-day meeting in Washington yesterday amid expectations the Fed will keep interest rates near zero.
Since December 2008, the Fed has kept its key target interest rate between zero and 0.25 per cent in an effort to boost economic growth and has used additional stimulus tools to provide extra support.
Investors believe the fed will stay the course on rates and signal Wednesday that its $600 billion asset purchase program – known as quantitive easing – will end as scheduled by June 30.
Elsewhere in Europe, hopes for a Greek solution sparked rallies, most notably in Athens where the Athex index advanced 3.75 per cent.
Madrid’s Ibex-35 gained 1.93 per cent; however markets closed moments before the IMF warned of “considerable” risks to the Spanish economy.
Lisbon rose 1.30 per cent, Amsterdam’s AEX index jumped 1.35 per cent, Milan was up 2.08 per cent and Brussels’ Bel-20 index rose 1.41 per cent.
But traders were not only motivated by optimism over Greece but by bargain-hunting after sharp drops across the board yesterday.
Some analysts even minimised the influence of Greece in the day’s movements, following sharp drops on Monday.
“The markets may have bounced but this does not mean we are out of the woods just yet,” said ETX Capital trader Manoj Ladwa, in reference to the ongoing Greek-eurozone debt crisis.
“Despite the FTSE recovering the drop of the past few days, volume is light as traders show a reluctance to commit funds. Until the sovereign debt issues with Greece are resolved, any rallies are likely to be short-lived.”
Energy shares were fuelled by news on BP. Shares of the oil-giant rallied after it announced overnight that it had struck a deal with oil services company Weatherford International, to settle potential claims between them linked to the Deepwater Horizon accident last year.
“The agreement is not an admission of liability by any party regarding the accident,” it added.
In the US, at 16H30 GMT, the Dow Jones Industrial Average had climbed 0.92 per cent to 12,191.75.
The broader S&P 500 was up 1.23 per cent to 1,294.12, while the tech-heavy Nasdaq Composite jumped 1.90 per cent to reach 2,679.57.
In Asia, Tokyo rose 1.13 per cent; Sydney added 1.27 per cent and Seoul jumped 1.41 per cent. Hong Kong added 1.16 per cent and Shanghai closed 0.96 per cent higher.