* German ZEW index lifts recovery hopes
* Successful Italian bond auction helps euro
* Early Moody's-related declines wiped out
* Bank of Japan surprises with policy easing
By Richard Hubbard
LONDON, Feb 14 The euro rose to a session
high and shares reversed early losses after key German data
bolstered hopes that Europe's largest economy was recovering and
a strong Italian bond sale added to signs that financing
pressures were being contained.
Those factors revived sentiment after a raft of euro zone
credit downgrades and warnings on the AAA ratings of France,
Britain and Austria from Moody's, which hit European markets
U.S. stock index futures pointed to Wall Street extending
Monday's gains with U.S retail sales data for January expected
to support the growing confidence that growth in the world's top
economy was improving.
Germany's ZEW Indicator of Economic Sentiment suggested the
recovery, which slowed at the end of last year, is back on track
there and that analysts are less fearful now about the impact of
the euro zone's debt crisis on the growth outlook.
"The economic weakness at the turn of the year is starting
to look more and more like it was just a mere dent," said Rainer
Sartoris, an analyst at HSBC Trinkaus. "The economy is
Italy sold 6 billion euros ($7.9 billion) of new bonds due
in Nov. 2014. Yield fell to their lowest level since March 2011,
adding to impressions that the risk aversion prompted by the
Moody's downgrade announced late on Monday was overdone.
"All in all, a good auction for Italy," Annalisa Piazza,
market economist at Newedge Strategy in London, said.
"This is a sign that the government's efforts to make
significant changes in the Italian economy are actually 'buying'
confidence amongst investors."
The FTSEurofirst 300 index gained about 0.2 percent
to 1,074.16 points, having traded in the red early in the day,
largely in response to the Moody's warnings and downgrades to
Italy, Portugal, Spain, Slovakia, Slovenia and Malta.
The euro, which had fallen to a session low of
$1.3127 on the Moody's announcement, rose to $1.3205 from around
$1.3185 before the release of the ZEW survey and the Italian
bond auction results.
The broad MSCI All Country World Index was
virtually flat at 326.26 after Asian shares earlier fell on the
Moody's announcement and its warning over the UK, which has been
seen as something of a safe haven for investors looking to
diversify away from the euro zone.
Investors had also become uneasy about whether the European
Union and the International Monetary Fund would judge as
adequate new austerity measures approved by the Greek
parliament, which are needed to release bailout funds and avoid
a chaotic default.
German Bund futures traded near session lows at
137.99, down 23 ticks on the day.
The dollar gained about 0.6 percent to a near three-week
high of 78.19 yen and Tokyo stocks rose when
Japan's central bank surprised markets with a further loosening
of its monetary policy through an increase of its asset buying
and lending scheme.
Although not expected so soon, the move tallies with easier
stances adopted by other major developed-world central banks as
they seek to support a modest global recovery and encourage
investors to move into riskier assets like equities.
Cheap loans from the European Central Bank and the prospect
of a lot more of this type of funding at the end of the month
helped Italy sell its Nov. 2014 paper at yields of 3.41 percent,
compared with 4.83 percent in mid-January.
Fellow peripheral struggler Spain's short-term borrowing
costs also fell on Tuesday at a sale of 5.4 billion euros of 12-
and 18-month bills.
In commodity markets, gold and oil prices were little
changed after dipping early in line with broad weakness among
riskier assets on the Moody's news and then recovering in line
with the euro/dollar exchange rate.
Spot gold was at $1,720.10 an ounce against $1,722.49
late in New York on Monday. U.S. gold futures for
February delivery were down $2.90 at $1,722.00.