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In mid-afternoon trade, London was sharply higher/XINHUA-File


European stocks, euro firmer in rebound

In mid-afternoon trade, London was sharply higher/XINHUA-File

LONDON, Jun 6 – European stocks and the euro were higher Wednesday, extending gains after recent heavy losses, on hopes EU leaders can thrash out a way of keeping Spain’s stricken banking system afloat.

Dealers said Spain is the immediate concern amid conflicting views between a hardline Germany and other eurozone states ready for some flexibility on how to help Madrid help its banks without resorting to a full and costly debt bailout.

They said the gains came even though investors had been hoping for some lead on the economy from the European Central Bank which instead held its key interest rate and 2012 forecasts unchanged.

ECB head Mario Draghi said later that some central bank governors had wanted a rate cut and that Wednesday’s decision was “taken by very broad consensus” — language analysts took to mean that there will be a reduction next month.

Meanwhile, highlighting the growing pressure for action, US President Barack Obama and British Prime Minister David Cameron agreed on the need for an “immediate plan” to resolve the eurozone crisis.

The two men “agreed on the need for an immediate plan to tackle the crisis and to restore market confidence, as well as a longer-term strategy to secure a strong single currency,” the prime minister’s office said.

In mid-afternoon trade, London was sharply higher after being closed Monday and Tuesday for public holidays, with the benchmark FTSE 100 index up 1.96 percent.

In Paris, the CAC 40 gained 1.65 percent and Frankfurt’s DAX 30 jumped 1.74 percent, helped by strong banks despite news that credit rating agency Moody’s had cut ratings on six major German lenders.

Madrid was up 1.91 percent and Milan added 2.77 percent.

In New York, stocks opened higher as investors there also bought back in, albeit cautiously given the uncertain background as they picked up on a report that the US Federal Reserve might be ready for more stimulus measures.

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The blue-chip Dow Jones Industrial Average was up 1.30 percent at around 1420 GMT and the tech-rich Nasdaq Composite gained 1.49 percent.

The European single currency meanwhile rose to $1.2508 from $1.2450 in New York late Tuesday. The euro hit $1.2288 last Friday, the lowest level since July 1, 2010, as markets were rocked by speculation that debt-plagued Spain could be forced into a bailout.

ETX Capital trader Markus Huber said that while investors largely expected the ECB to hold rates, some had hoped for change or at least an indication that the central bank would be ready for more exceptional measures.

ECB policymakers were mindful of the slowdown in eurozone inflation, alongside the recent deterioration in the debt crisis, he said ahead of the decision.

Kathleen Brooks at said that by leaving rates on hold, Draghi was saying that monetary policy alone cannot resolve the eurozone debt crisis and that it remained first and foremost a problem for governments to tackle.

Other analysts noted that G7 finance ministers did not issue a statement after a conference call Tuesday on the crisis, suggesting either deep differences of opinion or a lack of urgency – a disappointment either way.

Spanish Prime Minister Mariano Rajoy has refused so far to seek financial assistance from the European Union that would come with strings attached but has acknowledged that the situation of the banks is critical.

In Asian trade earlier Wednesday, Tokyo rose 1.81 percent, Hong Kong gained 1.43 percent and Sydney edged up 0.29 percent after the Australian economy grew faster than expected in the January to March period.

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