GLOBAL MARKETS-Spanish debt sale lifts euro, German bonds ease

Thu Jan 17, 2013 9:04am EST

* European shares open lower in cautious trade
    * German bond prices fall after Spanish debt auction
    * Euro up against dollar and yen after Spanish auction boost
    * Asia shares outside Japan down before Friday's China data

    By Richard Hubbard and Marc Jones
    LONDON, Jan 17 (Reuters) - The euro jumped against the
dollar and yen on Thursday and safe-haven German bond prices
fell as signs of strong demand at a Spanish debt auction lifted
sentiment toward riskier assets.
    Oil prices also gained, though partly from concerns about
supplies being affected by the upsurge in military activity in
Algeria and Mali. 
    World shares, which have largely drifted sideways this week,
edged up 0.1 percent, while Wall Street was expected to open
higher ahead of a busy day of corporate earnings and economic
data.   
    A larger-than-expected drop in U.S. jobless claims and
better-than-forecast rise in housing starts provided a welcome
early boost for investors looking for further evidence the
world's largest economy is regaining momentum.
  
    In Europe the main focus was on Spain's success in selling
4.5 billion euros ($6 billion) of new bonds at a lower cost than
in the previous auction, signalling growing confidence among
investors in the outlook for the recession-hit euro area.
    "It is a reflection of strong liquidity and improved
sentiment towards (euro zone) peripherals," said Alan McQuaid,
chief economist at Merrion Stockbrokers in Dublin.
    Confidence in the euro zone has risen since European Central
Bank President Mario Draghi made upbeat comments on the rebound
of financial markets last week, after promising in 2012 to
support the debt of any struggling country in the currency bloc
that was willing to reform its economy.
    "Overseas investors are returning back to the peripheral
bond markets, including from the U.S., because of the ECB
backstop for peripherals," Nick Stamenkovic, Fixed Income
Strategist, RIA Capital Markets.
    Accommodative monetary policies from the world's major
central banks and signs that the growth in the U.S. and Chinese
economies is picking up have also supported investment flows
into riskier assets and away from safe havens.
    German Bund futures fell as much as 66 ticks to
142.72 after the Spanish debt auction, while, as prices fell on
cash bonds, 10-year German yields rose to 1.546 percent.
.
    Spanish 10-year yields were steady at 5.072
percent, with equivalent Italian yields 5 bps down
at 4.152 percent.
    
    LOST IN TRANSLATION
    The euro hit a high of $1.3363 against the dollar for
a gain of 0.6 percent after the debt sale, fading back only
slightly afterwards. 
    The common currency was also up 1 percent against the yen at
118.75 yen, which is not far from the 20-month peak
of 120.13 hit on Monday.
    The euro and the dollar were already higher against the yen
on Thursday after Japanese Economy Minister Akira Amari was
quoted as saying his recent comments on the negative impact of a
weak yen had been misinterpreted.
    The yen has been falling ahead of a Bank of Japan meeting
next week when policymakers are widely expected to adopt a 2
percent inflation target and perhaps extend the current asset
purchase programme.
    "He (Amari) reversed his earlier comments today and markets
added new short yen positions," said Arne Lohmann Rasmussen,
head of FX research at Danske Bank, adding that the Spanish bond
auction "certainly helped the euro".
 
    
    SHARES CAUTIOUS
    In the equity markets, a massive $14 billion writedown at
global mining giant Rio Tinto and fears that weak growth in the
fourth quarter of 2012 will result in poor corporate results was
keeping price gains in check. 
    The FTSEurofirst 300 index of top European shares
recovered from an early slip to stand 0.4 percent higher at
1,164 points ahead of the U.S. open. London's FTSE 100,
Paris's CAC-40 and Frankfurt's DAX were up
between 0.3 to 0.6 percent.
    The MSCI world equity index was creeping
back towards its recent 18-month high. Asian shares outside
Japan fell 0.2 percent, extending declines for a
third session however.
    The falls were led by Chinese stocks as investors retreated
ahead a slew of economic data due on Friday including
fourth-quarter GDP, December industrial output, retail sales and
house prices.
    Oil prices, which are under pressure from the prospects of
weaker demand in 2013, gained support from concerns about
supplies being affected by military activity in Algeria and
Mali.
    Islamist fighters seized dozens of Western and Algerian
hostages in a dawn raid on a natural gas facility deep in the
Sahara on Wednesday and demanded France halt a new offensive
against rebels in neighbouring Mali. 
    Brent added 0.5 percent to $110.31 a barrel, and
U.S. oil was up 54 cents to $94.77.
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