European shares rallied Tuesday, boosted both by
new eurozone measures to help Spain and stronger-than-expected
economic data.
While stocks across Europe ended a four-day losing streak,
borrowing costs in Spain and Italy retreated. The improved investment
mood also spread to Wall Street to underpin a pickup in shares in New
York.
This came after eurozone finance ministers set out plans for an
aid package to help Spain deal with the crisis threatening its banks
and to give Madrid an extra year to meet its deficit targets.
But, as a reminder that the euro debt crisis is far from resolved,
the euro gave up earlier gains to tumble to near a two-year low of
1.2250 dollars as last week's decision by the European Central Bank
to cut deposit rate to zero caught up with the common currency.
After a downbeat start to the trading day, the blue-chip Eurostoxx
50 index climbed by 1.2 percent to 2,254 points, following the
release of stronger-than-forecast industrial production data for both
Italy and Britain.
Analysts said the data helped to ease investors' concerns about
growth in Europe as governments across the region roll out tough
austerity measures and offset weaker-than-forecast trade figures from
China.
"This means that, even if we pencil in a significant decline in
June (in Italian output), the contraction in industrial activity in
the second quarter may be milder than in the first quarter," said
Loredana Federico of UniCredit.
Output in Italy contracted by 2.3 percent quarter-on-quarter in
the first three months of the year.
The gain in the Eurostoxx 50 index was reflected across national
bourses with stocks in Frankfurt and Paris rising by more than 1 per
cent.
Shares in Italy and Spain also posted solid gains, with stocks in
Milan rising 1.18 per cent as the trading day drew to a close.
Shares in Madrid were up 1.4 percent, with Europe's new moves on
Spanish banks helping to drive the country banking stocks higher.
The New York Stock Exchange's Dow Jones industrial average had
gained 0.5 percent about half an hour into Wall Street's trading
session.
At the same time, Spain's borrowing costs dropped in afternoon
trading, with the spread between Spanish and German 10-year bonds
down to 547 basis points. That was 25 basis points less than in the
morning.
The yield for Spanish 10-year bonds slipped below the 7 percent
mark to 6.8 percent. Analysts believe that borrowing costs above 7
percent are not sustainable over the longer term. Meanwhile, the
yield on Italian 10-year bonds fell 13 basis points to 5.97 percent.
But, underscoring the fragile state of the eurozone economy, data
released by France's statistics office showed industrial production
in the bloc's second-largest economy slumping by a more-than-forecast
1.9 per cent in May compared with the previous month.
Analysts also said that a legal challenge before Germany's highest
court about whether Germany could constitutionally participate in
some measures to fight the eurozone crisis were also a source of
concern for investors.
