Wednesday, October 5, 2011

GLOBAL MARKETS-Stocks, commods gain on EU bank pledge; euro dips

LONDON: European shares and commodity prices bounced on Wednesday, Oct 5 after Europe's finance ministers agreed to safeguard euro zone banks from the spreading sovereign debt crisis, though the euro hovered near a nine-month low against the dollar.

World stocks and commodities, such as Brent crude, were hit hard in the past few sessions on mounting concerns that a debt default by Greece in the coming months could lead to a banking crisis, which would aggravate the global economic slowdown.

European Economic and Monetary Affairs Commissioner Olli Rehn, however, told the Financial Times on Tuesday that the ministers, who have hitherto rejected any concerted bank recapitalisation, had a new sense of urgency.

His comments came hours after French-Belgian financial services group Dexia became the first European lender to have to be bailed out because of the euro zone debt crisis.

It also showed euro zone policymakers had become more aware of the seriousness of a potential banking crisis lately, which helped European equities to recover on Wednesday, though some analysts remained sceptical until they come up with concrete measure to tackle the crisis.

"This rally may not last. Lots of stocks look cheap. We need a strategy for resolving the sovereign debt crisis in the euro zone. We need a strategy to get on top of the U.S. debt problem," Jeremy Batstone-Carr, strategist at Charles Stanley, said.

"Until we get answers, the market can stay cheap. Economic authorities in Europe have continually failed to come up with a robust policy. Now they're in the last chance saloon."

Europe's FTSEurofirst 300 advanced 1.5 percent on Wednesday, with banking shares up 2.8 percent. Dexia gained 2.8 percent after losing more than one-third of its value in the previous four sessions.

Italy's share benchmark put on 1.3 percent, despite Moody's lowering its credit rating on Italy late on Tuesday by three notches to A2, citing a "material increase" in funding risks for euro zone countries with high levels of debt and warning that further downgrades were possible.

However, the new Moody's rating of Italy was in line with that of rival Standard & Poor's, which cut its rating on Italy by one notch to single-A last month.

Yields on 10-year Italian government bonds rose 4 basis points to 5.540 percent, while those on 10-year benchmark German Bunds rose 4.8 basis points to 1.769 percent after falling in the previous three sessions.

"It's still a mess out there," one bond trader said. "The Italy news has offset the bank recapitalisation talk. I don't see any reason why Bunds should dramatically sell off."

"The plan doesn't seem to have any details, it is still the early stages of talks and generally these things don't have anything other than a temporary impact."

The euro was down 0.2 percent at $1.3314 and 0.4 percent at 102.13 yen , while the dollar was off 0.6 percent against a basket of major currencies.

World stocks measured by MSCI All-Country World Index put on 0.4 percent, after hitting a 15-month low the previous session.

Asian shares outside of Japan added 0.5 percent, though Japan's Nikkei average fell 0.9 percent.

Copper rose 2.2 percent to trade just below $7,000 a tonne, snapping a five-day losing streak, while Brent crude added 2 percent to near $102 a barrel after a three-session losing run.

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