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European stock markets rallied yesterday on strong bank shares, and the euro gained against the dollar as investors hoped for a firm outcome to a Greece debt deal following an upbeat German bond auction.
Markets, especially oil, also reacted to news that the EU would slap sanctions on Iranian oil exports.
At the close of European trade, the Paris CAC 40 had climbed 0.51% to 3,338.43 points, Frankfurt’s DAX 30 won 0.50% to 6,436.62 points and London’s FTSE 100 advanced 0.94% to 5,782.56 points.
Madrid rose 0.67% and Milan 1.76%.
The euro rose to $1.3035 in afternoon trading from $1.2933 on Friday in New York, breaking above the $1.30 level for the first time since January 4.
After an hour of trading on Wall Street, the Dow Jones Industrial Average was up 0.18% to 12,743.14 points. The tech-rich Nasdaq Composite added 0.35% to 2,796.53 points while the broad-based S&P 500 advanced 0.34% to 1,319.86 points.
“The pick-up in risk appetite continues, said Jerome Vinerier at IG Markets in Paris. “Investors are attracted by cyclical and banking sectors again.”
Ahead of an EU finance ministers meeting in Brussels, Germany attracted solid demand at a sale of one-year debt yesterday.
The ultra-low rate of 0.07% that Berlin benefitted from nonetheless suggested that investors still sought safe havens as the debt crisis ground on.
The auction was the latest in a series of debt sales that has given European capitals cheer despite this month’s downgrade of nine nations’ credit ratings by Standard & Poor’s.
France, which lost its S&P triple-A rating, was still able to raise €8.2bn in short-term debt at lower interest rates last week.
But worries over Greece fail to go away, while a deal on restructuring the country’s debt now seems to rest with the European Union, International Monetary Fund (IMF) and European Central Bank (ECB).
Charles Dallara, chief negotiator for the Institute of International Finance (IIF), the group representing private lenders, said banks had offered the “maximum” they were prepared to lose in a “voluntary” bond-swap deal.
The focus of disagreement has been the interest rate on new bonds that private investors would receive as part of the debt exchange, with the two sides reportedly talking around a range of 3.0%-4.35%.
Negotiations on cutting around €100bn from Greece’s massive debt of more €350bn were adjourned on Friday.
But EU commissioner Olli Rehn said yesterday that he was optimistic the talks could be wrapped up this week.
Meanwhile, IMF head Christine Lagarde identified a raft of proposals to fight the eurozone crisis, including a bigger EU rescue fund, lower ECB rates and the creations of eurobonds as she warned of dimmer world growth prospects.
“We need a larger firewall,” Lagarde added. “Without it, countries like Italy and Spain that are fundamentally able to repay their debts could be forced into a solvency crisis by abnormal financing costs.”