Wednesday, November 9, 2011

Asian shares rise as concerns over Italy ease

TOKYO (Nov 9): Asian shares rose and the euro steadied on Wednesday after Italian Prime Minister Silvio Berlusconi said he would resign, raising hopes the debt-ridden country would proceed with reforms to contain the euro zone's sovereign debt crisis from spreading.

MSCI's broadest index of Asia Pacific shares outside Japan rose 0.8 percent, while Japan's Nikkei stock average opened up 0.8 percent.

The euro held firm early in Asia as easing political uncertainty in Italy restored some investor confidence in the single currency, pushing it to $1.3825 against the dollar. The euro rose as high as $1.3847 in New York on Tuesday.

The currency market was shifting its focus to Chinese inflation data due during the session and expected to show a moderation in October, as well as industrial output figures forecast to show a modest slowdown.

"There will be a knee-jerk reaction to the news of Berlusconi resigning. But it is unclear who has enough political support to take his position and make real reforms in Italy," said Yumi Nishimura, senior technical analyst at Daiwa Securities.

Berlusconi said he would step down after parliament approves a budget law that includes austerity reforms to cut debt and bring borrowing costs under control. Votes on the budget meausres and his resignation could come this month.

The yield on Italy's benchmark 10-year bond hit a 14-year high of 6.79 percent on Tuesday, approaching levels seen in the government bonds of Portugal and Ireland when they had to seek bailouts.

Italy is the third largest economy in the euro zone and failure to fix its debt problems would have a far bigger impact on the region than difficulties in Greece.

Investor jitters over Italy's debt has kept the spread on Italian government bonds over Bunds to 490 basis points.

Improved prospects for Italy to embark on debt reforms eased strains in Asian credit markets. The spreads on the iTraxx Asia ex-Japan investment grade index - a gauge of investor appetite for risk - narrowed by about 5 basis points early on Wednesday.

The MSCI world equity index rose 0.9 percent and U.S. stocks also gained on Tuesday.

While the market was temporarily relieved by Italy's political shakeup, Greece remained undecided on its next leader. Party leaders were locked in talks on a unity coalition, with the European Union seeking an immediate deal to save the country's finances.

European Union finance ministers also failed to make progress on Tuesday on ways to shore up sagging banks and avert a credit squeeze, as rising borrowing costs for Italy make it more difficult for European banks to borrow as they are increasingly reluctant to lend to one another.

Such uncertainties over key issues kept the safe-haven appeal intact for gold, despite the rise in riskier assets such as stocks. Gold was up 0.2 percent. ' Reuters


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