It News: Global stock rally continues on ECB, Greece optimism

Global stock rally continues on ECB, Greece optimism

By Marc Jones
LONDON | Tue Aug 21, 2012

A man looks at an electronic board displaying share prices outside a brokerage in Tokyo July 25, 2012. REUTERS-Yuriko Nakao

(Reuters) - Rallying European markets lifted global stocks to a 3-1/2 month high on Tuesday, on hopes that meetings on Greece's future this week and new crisis plans being drawn up by the European Central Bank will see the euro zone master its debt problems.

European shares .FTEU3, which have risen 16 percent since June, were up 0.4 percent at a 13-month high ahead of what was expected to be a positive open on Wall Street.

After modest rises in Asia it left the MSCI global share index .MIWD00000PUS up 0.4 percent at 1200 GMT, .EU .L .N while the euro hit a two-week high of $1.2398 versus the dollar and climbed further against the yen and sterling.

"The dollar is weaker versus the euro ahead of the key meetings this week that may provide clarity on both the immediate outlook for Greece and the outlook in regard to the ECB's plan to buy sovereign bonds," said Derek Halpenny of Bank of Tokyo Mitsubishi. "That optimism is persisting today."

U.S.-focused investors may remain cautious ahead of Wednesday's publication of minutes from the most recent Federal Reserve meeting where it gave little hint of imminent addition policy easing.

The S&P 500 has gained nearly 3 percent so far in August. S&P 500 futures rose 3.2 points ahead of the open, Dow Jones industrial average futures rose 24 points, and Nasdaq 100 futures added 9 points.

Hard hit Facebook shares (FB.O) will be in the spotlight again, however, after it was revealed director Peter Thiel sold roughly $400 million worth of shares last week, cashing out most of his stake in the social networking firm.

ECB HOPES

Stock markets have enjoyed a red-hot run over the last few weeks on hopes that the new urgency in Europe to overcome its 2-1/2 year debt crisis may allow Greece to remain in the euro and keep the 17-member bloc from unraveling.

Greek Prime Minister Antonis Samaras will meet German Chancellor Angela Merkel, French President Francois Hollande and Eurogroup chief Jean-Claude Juncker in the coming days to try to secure more funding from the European Union, International Monetary Fund and ECB, even though Greece has fallen behind on its debt-cut targets.

Investors are primarily looking for clues on plans the ECB is due to detail at the start of September. These are expected to involve heavy Spanish and Italian bond buying if Madrid and Rome admit themselves into fiscal rehabilitation programmes.

The ECB poured cold water on a report over the weekend that it was considering capping inflamed borrowing costs by buying those countries' bonds if they breached a certain level. Nevertheless hopes for the plans remain high.

SPAIN GAIN

Rating firm Moody's released a report saying that repair programmes in troubled southern euro zone countries were having a significant benefit, although overcoming the problems could take several more years.

Bond markets remained in upbeat mood after Spain saw a drop in its borrowing costs at an auction of shorter-term, 12-18 month debt.

With the appetite for riskier assets slowly re-emerging, German government bonds, traditionally favoured by risk-shy investors, waned in morning trading. They were outstripped by Italian, Spanish and other debt-strained countries' paper.

Portugal also benefited from the ECB glow as its 10-year borrowing costs fell below 9.5 percent for the first time since it was forced to take a bailout early last year.

"We expect Spain to continue outperforming Italy, especially in the short end, on continued expectations of ... EFSF and ECB support," RBS strategists said in a note, referring to the European Union's bailout fund and the euro zone's central bank.

In other markets, oil drifted within its recent range, underpinned by supply concerns triggered by escalating conflicts in Syria and Yemen as well as by Iran's dispute with Israel, the United States and Europe.

Gold prices firmed as investors sought a counterbalance to the prospect of additional monetary stimulus. Platinum prices hovered just below a two-month peak as concerns over unrest at mines in top producer South Africa festered.

One piece of gloomier news came from Britain where public sector finances showed an unexpected deterioration. "It probably means come November the government is going to have to announce further fiscal tightening," said Gustavo Bagattini at RBC Capital Markets.

(Editing by Alastair Macdonald)