European stocks bounced back from early losses yesterday as fears for the health of the banking sector eased, while on the currency market the yen continued its surge and struck a fresh 15-year high against the dollar.
Investors began the day in a gloomy mood, in line with a slide in Asian equities and reflecting concerns for the European banking industry.
But sentiment perked up in mid-afternoon following reports on the German economy, news of a successful sovereign bond issue in debt-saddled Portugal and comments from the head of the German central bank.
The reports also contributed to a positive start to the trading day on Wall Street.
In Europe the FTSE 100 index added 0.41 per cent to close at 5,429.74 points while in Paris the CAC 40 rose 0.92 per cent to 3,677.21. The Frankfurt DAX gained 0.76 per cent to end the day at 6,164.44 points.
Elsewhere, there were gains of 0.91 per cent in Milan, 1.02 per cent in Madrid and 0.42 per cent on the Swiss Market Index.
European investors digested news that German industrial output edged 0.1 per cent higher in July from the June level after a sharp drop in orders suggested that the economy could be cooling down.
While the data indicated that Europe’s biggest economy was slowing slightly following record quarterly growth of 2.2 per cent in the second quarter of the year, analysts said the trend had been expected.
In another development, official data showed that German exports rose sharply in July compared to the year before, providing a further boost to investor spirits.
And although the pace of export growth weakened slightly compared to the month before, analysts said overseas sales would continue to be an important driver in Germany, the world’s second largest exporter, in the second half of the year.
European share prices wilted on Tuesday following a Wall Street Journal report suggesting that “stress tests” in July to assess the solvency of European banks had failed to take account of their exposure to sovereign debt.
The report revived market nervousness regarding the European bank sector that finally receded on Wednesday after comments from German central bank president Axel Weber.
Weber, an influential member of the European Central Bank governing council, told a forum stricter that banking standards for capital and cash reserves would not burden economic growth.
The Swiss-based Bank for International Settlements (BIS), the so-called central bank of central banks, is drafting tougher bank capital and liquidity rules to try and prevent another international financial crisis.
German regulators had voiced concern, however, that a preliminary agreement reached in July could undermine the banking sector.
Also contributing to the market turnaround was news that Portugal had successfully placed government bonds to raise a total of €1.039 billion, although it had to pay sharply increased rates even though the offers were oversubscribed.
Portugal is one of the eurozone countries being watched particularly closely on government debt markets, owing to concerns about how it can correct overstrained public finances while obtaining funding on the bond market.
The news from Lisbon prompted a gain on in early trading on Wall Street, where the Dow Jones Industrial Average was up 0.60 per cent at 10,402.37 at mid-day, when the tech-heavy Nasdaq had risen 0.97 per cent to 2,230.26.
The euro too benefited from the Portuguese placement, trading at $1.2735 late in the session, up from $1.2678 on Tuesday.