* Euro zone inflation steady
* Swiss franc policy unchanged
* Spanish risks ease
By Richard Hubbard
LONDON, Dec 15 The sell-off in European
stocks and the single currency paused for breath on Thursday as
a good Spanish debt auction eased market nerves over the euro
zone debt crisis and the bleak global economic outlook.
Data showing euro zone annual inflation steady at 3 percent
for November also suggested the European Central Bank had ample
room for another rate cut.
"The imminent recession, plus sharply lower commodity price
inflation, should push inflation below 2 percent in the course
of next year," said Martin Van Vliet, economist at ING.
"The prospect of markedly slower inflation gives the
European Central Bank room to ease monetary policy further."
The euro rose about 0.2 percent at around $1.30 after
having fallen to as low as $1.2945 on Wednesday, its lowest
level since January 11. The next major support for the currency
will come at $1.2860, which is its lowest price this year.
The safe-haven Swiss franc got a boost after the central
bank kept its cap on the currency at 1.20 per euro, knocking
back speculation it would move to weaken the currency further.
Meanwhile another traditional safety play, gold, saw its
price recover from the hammering it has taken in recent days as
fund managers liquidated their holdings to be virtually
unchanged in London at $$1,590 an ounce.
Gold dropped by 3.5 percent on Wednesday to its lowest
levels since September and has lost 9 percent of its value this
month. Gold has increasingly become prone to pressure from the
wider financial market, moving in tandem with other assets as
investor sentiment remains fragile.
U.S. stock markets were also poised to open higher on Wall
Street after falling to their lowest level in two weeks on
SPANISH FEARS EASE
The sense of relief in European markets was boosted when the
risk premium on benchmark Spanish government bonds eased after a
well received bond auction, which raised more than the
government had targeted.
The Treasury sold just over 6 billion euros of bonds, well
above the top end of the 2.5-3.5 billion euro range targeted,
sending the 10-year Spanish benchmark yield to a
session low of 5.59 percent, down 15 basis points on the day.
Spain's performance contrasted with Italy on Wednesday which
saw its yields rise sharply on its five-year bonds.
"These are still high levels of rates but they are a lot
better than Italy's," said Marc Ostwald, a strategist at
Worries about Spain's ability to fund itself are less acute
than for Italy, which faces redemption and coupon payments of
around 100 billion euros between January and April, Reuters data
shows. Spain has no major redemptions until April.
"In regards to Q1 of next year in particular, Italy has so
much debt to issue, a tad more that $60 billion, and we remain
sceptical that the ECB (European Central Bank) can offset this,"
said Michael Leister, euro zone rates strategist at WestLB in
DATA STILL BLEAK
The economic gloom surrounding the euro zone also eased
slightly after first estimates of the Purchasing Manager's
Indexes in December showed a slight improvement over November
but the numbers still point to an economic contraction ahead.
"The December survey revealed a widening contrast of
performance within the euro zone. Germany is likely to have
stagnated in the fourth quarter. Elsewhere in the euro zone,
however, the rate of contraction remained steep - the fastest
since mid-2009," said Chris Williamson, the chief economist for
the data compiler Markit.
A private sector survey out earlier indicated China's
factory output will shrink again in December, adding to the
headwinds facing a global economy struggling with sluggish U.S.
growth and the euro zone's problems.
Despite the economic gloom European shares bounced off
two-week lows tom be slightly firmer but as liquidity dries up
ahead of the year end.
The FTSEurofirst 300 index of top European shares
was up 0.7 percent after falling 2.1 percent in the previous
Global stocks as measured by the MSCI world equity index
extended their losing streak this week with the
index now down about 4.7 percent in the past month.