European stock markets closed higher yesterday, bouyed by hopes that debt-burdened Greece will get a second international bailout even as weak US data trimmed the gains.
Dealers said markets got a boost from a strong performance in Asia as investors welcomed reports that Germany, Europe’s paymaster and economic powerhouse, was proving more flexible on helping Greece.
If Berlin agrees to a second bailout – to follow the €110-billion EU-IMF rescue in May 2010 – then the sting should be drawn from the eurozone debt crisis, allowing time for a more permanent solution, they said.
Signs of a solid pick-up in Japan as the economy bounces back from the devastating earthquake and tsunami in March gave stocks in Asia and Europe additional support.
However, a disappointing US consumer confidence report for May stripped some of the sharp opening gains on Wall Street and also took the gloss off the European markets in late afternoon trade.
In London, the benchmark FTSE 100 index of top shares closed up 0.86 per cent to 5,989.99 points. In Frankfurt, the DAX rose 1.86 per cent to 7,293.69 points and in Paris the CAC 40 gained 1.63 per cent to 4,006.94 points.
Elsewhere in Europe, markets posted similar gains, with Athens jumping 5.58 per cent and Madrid adding more than two per cent.
Dealers cautioned that the bounce yesterday was more pronounced after public holidays closed London and New York on Monday while the Greek issue remains to be resolved.
“So another little bounce... as investors price in the full expectation of another bailout for Greece next month,” said Capital Spreads analyst Simon Denham.
“There’s little chance that they will be able to repay their bond holders come mid-July, where a default was inevitable, and so now they know further aid is in the pipeline,” Mr Denham said.
“The concern is that the money will just be frittered away and over the extended weekend Greece’s opposition party rejected the Prime Minister’s austerity package.
“This is the major problem and if Germany keeps throwing good money after bad, there’s little incentive for the Greeks to eradicate the debt burden.”
Athens needs a instalment due under its bailout plan worth €12 billion to pay its bills in July but the International Monetary Fund has threatened to withhold its contribution without a broader agreement that will make Greece’s debt – over €350 billion – sustainable.
“Sentiment over Greece has been swinging between optimistic and negative like a see-saw for much of the last few months,” said City Index strategist Joshua Raymond.
“A second bailout buys Greece time but the market must be convinced that this will be the final time such a requirement is needed and until then, sentiment over sovereign debt within the eurozone is likely to remain fragile.”
A major discordant feature on the day was Nokia, the world’s number-one mobile phone maker, whose shares plummeted 17.5 per cent after another profit-warning hit investors who had been hoping new management and a tie-up with Microsoft promised a better future.
In New York, the blue-chip Dow Jones Industrial Average added more than one per cent at the opening but slipped back on the May consumer confidence report to show a gain of 0.57 per cent at around 1550 GMT.
The tech-heavy Nasdaq Composite rose 0.65 per cent.
Dealers said the strong opening faded after the Conference Board said its consumer confidence index slid to 60.8 in May from 66 in April on growing worries about unemployment and rising food and fuel prices.
Analysts had expected a fall to 63 points.
Manufacturing activity in the Chicago area also slowed for the third straight month in May, the Institute for Supply Management said, dragging its index to the weakest level in a year and a half.
In Asian trade earlier yesterday, Tokyo jumped 1.99 per cent, Hong Kong gained 2.17 per cent and Shanghai was up 1.37 per cent.