Thursday, 12 January 2012

Euro jumps as debt fears ease; world stocks up

A trader works on the floor of the New York Stock Exchange January 4, 2012. REUTERS/Brendan McDermid
NEW YORK | Thu Jan 12, 2012 3:55pm GMT
(Reuters) - The euro jumped and world stocks edged higher as strong demand at auctions for Italian and Spanish government debt on Thursday eased fears over the region's debt crisis.

U.S. stocks opened nearly flat, however, while oil prices jumped along with the euro.

Spain sold twice as much three-year debt as it needed and Italy paid less than it did a month ago on one-year securities at their first auctions of 2012 as cheap money lent to banks by the ECB in December fuelled demand for shorter term debt.

The euro also was boosted by comments made by European Central Bank President Mario Draghi, which market traders construed as dovish. The currency jumped to a session high against the U.S. dollar, piercing $1.28.

"He's saying the loan facilities are working and he's really pressing policymakers to move toward a fiscal compact. Markets are taking that as a hopeful sign. On rates, he's taking a wait-and-see attitude," said Boris Schlossberg, head of research at GFT Forex in Jersey City, New Jersey.

"He acknowledges the downside economic risks but also said survey data has shown some signs of stabilization. So that is offering a ray of sunshine, a hope that maybe they can skirt a recession."

As expected the ECB left its key interest rate unchanged at a record low 1.0 percent at Thursday's policy meeting as it pauses to assess the impact of back-to-back cuts and a slew of other measures unleashed late last year that are showing signs of helping fight the euro zone debt crisis.

Spain's risk premium, the spread between yields on Spanish and German benchmark bonds, narrowed to its tightest level since January 3 after the auction results and the yield on its 10-year bonds eased to 5.14 percent, near the low for the year.

The yield on Italian 12-month bills fell to 2.735 percent from the near 6 percent Italy paid to sell one-year paper at a mid-December auction and the lowest level since June 2011.

"Basically the only reason this has been taken down so well is abundant ECB liquidity and with another one coming up in February, just for now the market seems very complacent," said Michael Leister, strategist at DZ Bank in Frankfurt.

In stocks, the MSCI World Equity Index .MIWD00000PUS was up 0.2 percent, while the FTSEurofirst index .FTEU3 index of top European shares was down 0.2 percent.

U.S. stocks were flat after the opening as the well-received sovereign debt sales were offset by downbeat U.S. economic data as well as a profit warning by Chevron Corp (CVX.N). Chevron shares were down 2.1 percent at $105.49 in early U.S. trading.

The data showed U.S. retail sales rose at the weakest pace in seven months and the number of Americans applying for first-time jobless benefits rose last week.

Disappointing news on the European economy weighed on sentiment there as well. Output at factories across the 17-country euro area fell 0.1 percent in November from October, and although this was slightly better than expected it reinforced the view that the euro zone economy entered a recession in the final quarter of 2011.

Brent and U.S. crude futures extended gains in volatile trading as the euro rallied versus the dollar, adding lift to dollar-denominated oil along with concerns about supply disruptions.

Brent February crude was up $2.19 at $114.43 a barrel at 9:42 a.m. EST (2:42 p.m. GMT), having reached $115.12 and U.S. February crude was up 1.71 at $102.58, having reached $102.98.

(Reporting by Richard Hubbard in London and Caroline Valetkevitch in New York; 
Additional reporting by Tracy Rucinski in London and Julie Haviv and Robert Gibbons in New York; 
Editing by Chizu Nomiyama)