GLOBAL MARKETS-Europe steadies after Italy clears auction test

Wed Feb 27, 2013 8:50am EST

* Solid Italy debt sale steadies markets after election
    * Euro rises off seven-week lows
    * Commodity markets climb after Fed reassures on support
    * Wall Street expected to open slightly higher

    By Marc Jones
    LONDON, Feb 27 (Reuters) - European bonds, shares and the
euro all rose on Wednesday after solid demand at an auction of
Italian government debt helped calm fears that political
stalemate in Rome could reignite the bloc's debt crisis.
    U.S. stock futures also pointed to a positive open on
Wall Street as it looks to build on Tuesday's gains following
the Federal Reserve's reassurance over its support measures.
 
    Though paying more than half a point more interest than
before its election, Italy sold all 6.5 billion euros of the 5-
and 10-year bonds it offered investors two days after the vote
offered no party a majority and renewed concern over its
finances. It could have chosen to sell less. 
    Investors fear the strength of the vote for anti-austerity
parties could weaken efforts to reform public finances and
labour laws and damage the euro zone's efforts to resolve its
three-year old debt crisis.
    Italian bonds and those of other euro zone countries
suffering concern over their creditworthiness were helped by the
sale. Safe haven German bonds fell before recouping
losses, while the euro climbed back above $1.31 as it
recovered from Tuesday's seven-week low.
    "A very strong auction on all accounts, both when you look
at the demand side and the pricing side. The Tesoro filled the
maximum amount, with 4 billion allocated in the new 10-year,
which is very strong." said Michael Leister, a senior bond
strategist at Commerzbank in London.
    Italy and Spain's need to change the shape of their
economies, get growth going and debt down, have been at the
heart of the euro zone's troubles for over a year, but the fears
have eased substantially since the ECB said it would do whatever
was necessary to prevent a break up of the euro.        
    Italian 10-year yields fell 7 basis points to
4.83 percent in the secondary market; the Bund future was 27
basis points up on the day at 145.09 after the sale.  
    After a choppy morning Europe's stock markets and MSCI's
global share index settled higher ahead of the Wall Street open.
    The pan-European FTSEurofirst 300 was up 0.2
percent as 0.4 percent gains in Milan's FTSE MIB and
Madrid's IBEX helped it recover some of Tuesday's sharp
falls.    
 
    
    CYPRUS DEBT HILL
    Relief over Italy was bolstered by European business
confidence data which rose for a fourth month running, although
the survey was carried out before the indecisive elections.
    Offsetting it, data from the European Central Bank showed
bank lending to euro zone firms contracted for the ninth month
in a row in January despite its record low interest rates and
aggressive support measures. 
    "Although euro zone banks' liquidity positions have improved
overall since early 2012, it is clear that this has had little
effect in boosting private-sector lending," said IHS Global
Insight economist Howard Archer.
    "It is also evident that the ECB's decision to cut its
deposit rate to zero from 0.25 percent last July has done little
to encourage banks to lend more to the private sector."
    Separate figures also showed savers and firms in Cyprus,
another of the euro zone's members in crisis, had rushed to pull
their money out of the island's banks last month as its problems
intensified, a trend expected to have continued.
    Benoit Coeure, one of the ECB's top policymakers, joined the
debate on Cyprus' debts, saying depositors in Cypriot banks
should not be forced to take losses across the board as part of
a euro zone rescue.  
    
    FED SUPPORT 
    Financial market caution surrounding the euro zone was also
balanced by Federal Reserve Chairman Ben Bernanke's defence on
Tuesday of the U.S. central bank's monetary stimulus, which
eased worries over a possible early retreat from its policy of
bond purchases. 
    Bernanke is due to make his second appearance before the
Financial Services Committee at 1500 GMT, although little tends
come from the second day of testimony.       
    Brent crude gained 34 cents to climb back above $113 a
barrel, marking a steady recovery from its Tuesday's
month low of $112.41. Gold, which saw its biggest one-day
rise in three-months after Bernanke's comments, gave back 0.4
percent to leave it just above $1,600 an ounce. 
    The rise in oil also came as world powers ended two days of
talks with Iran over its nuclear programme with no sign of a
breakthrough, although Iran itself emerged upbeat.
 
    Iron ore, which hit a 16-month high of $160 a tonne last
week on signs that China's giant steel mills were stocking up,
was steady at around $151.90 , having also
suffered in the previous day's selloff of riskier assets
    China's iron ore demand is expected to grow faster this
year, at 5.7 percent to 1.11 billion tonnes, as the overall
economy recovers, boosting demand for steel, according to the
China Iron and Steel Association. 
    Three-month copper on the London Metal Exchange climbed 0.15
percent to $7,870 a tonne, though the metal remains one
of the few risk assets to be down for the year to date.
    "Right now I'm not particularly bearish for the (metals)
sector as a whole. We've had a decent clear-out, a decent
correction, it doesn't look so over-ripe for a fall now," said
Stephen Briggs, metals strategist at BNP Paribas in London.
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