Share prices turned sharply higher yesterday and the euro soared against the dollar as a draft eurozone debt deal offered the hope of finally taming a crisis which has roiled markets for months.
Dealers said that, as news came through that debt-stricken Greece would get more help and improved loan terms – also offered to bailed-out Ireland and Portugal – there was a strong relief rally.
They said many had feared that the Brussels eurozone summit would produce no progress, like earlier meetings, and so allow the crisis to deepen around Italy and Spain, seen as the next debt dominoes most at risk.
The prospect of a far-reaching accord going beyond the immediate needs of Greece would help take the pressure off nervous markets and a struggling economy, which has shown distinct signs of slowing down recently, they added.
However, after the initial euphoria, the markets notably settled back to await confirmation and more details about what has been agreed, with the euro slipping off highs above $1.44.
In London, the benchmark FTSE 100 index of top shares closed up 0.79 per cent at 5,899.89 points. In Frankfurt, the DAX added 0.95 per cent to 7,290.14 points and in Paris the CAC 40 rose 1.66 per cent to 3,816.75 points.
Milan jumped 3.76 per cent and Madrid was up 2.93 per cent, reflecting the relief felt there, while other European markets all posted healthy gains.
The euro was at $1.4381 in late trade, off highs above $1.44 but still up very sharply from $1.4212 in New York late on Wednesday. The dollar was at 78.46 yen, down from 78.77 yen.
Gold, which earlier this week hit fresh record highs as investors sought out its safe-haven attributes, was at $1,601 an ounce, up from $1,586, rising sharply as the dollar weakened.
Dealers cautioned that by the close in Europe, there was still nothing official from the Brussels summit and the devil could be in the details.
“At this moment, there is nothing official. We have to be cautious but if the outcome is what we have heard, then that would be encouraging,” said Yves Marcais, dealer at Global Equities in Paris.
“It is overall positive and the mere fact of having an accord is already an advance which shows that the political will is there to try to avoid the contagion effect,” Arnaud de Champvallier at Turgot Asset Management said.
On Wall Street, stocks were up sharply – although investors there were still waiting for some progress in their own debt impasse as President Barack Obama heads into more talks with his Republican foes on the deficit.