August 3, 2012 / 7:40 AM / 5 years ago

GLOBAL MARKETS-Euro, shares gain on prospect of future central bank aid

4 Min Read

* European shares, euro stage recoveries after ECB-linked selloff

* ECB pointer to future action pulls Spanish debt yields down

* Markets await U.S. jobs data due at 1230 GMT

By Richard Hubbard

LONDON, Aug 3 (Reuters) - European shares and the euro surged and Spanish bond yields eased off their highs on Friday as investors decided the European Central Bank was committed to tackling the region's debt crisis despite taking no action this week.

U.S. stocks were also poised for a firm start on Wall Street as markets awaited the July non-farm payrolls report, due at 1230 GMT, which will be key to short-term sentiment and are expected to show job creation running at weak levels.

The ECB had kept rates unchanged and dashed hopes of any immediate action to ease the borrowing costs of Spain and Italy on Thursday, although it did suggest that under certain conditions it would consider purchasing bonds,

"There are a lot of people out there taking a reassessment of what (ECB President Mario) Draghi said yesterday," said Lutz Karpowitz, currency strategist at Commerzbank. "It's rather difficult to believe they will really refrain from stepping into the market."

The prospect of a future policy response helped lift the euro by 0.6 percent to around $1.2260 after it had skidded by nearly three cents on Thursday to $1.21335 in initial reaction to the ECB announcement.

The FTSEurofirst 300 index of top European shares was up 1.5 percent at 1,070.93 points, on track for its ninth weekly gain in a row and extending its longest run of weekly rises since mid-2005.

The benchmark index was recovering from a drop of 1.2 percent made after the ECB's decision, which had followed a promise from Draghi last week to do whatever it takes to save the common currency, within the bank's mandate.

"Draghi is keeping investors in suspense, he's basically winning time. But at some point, we need a clear plan, not just threats, otherwise the market will remain very erratic," said Alexandre Le Drogoff, fund manager at Talence Gestion, in Paris.

Debt Relief

The belief that the ECB was a step towards a new round of bond buying encouraged some investors to buy shorter dated Spanish and Italian debt, bringing yields off their highs across the market.

Spanish 10-year yields were down 1.5 basis points on the day at a still elevated 7.07 percent and off early highs of around 7.4 percent.

Equivalent Italian yields were about 22 basis points lower on the day at 6.11 percent, having risen as high as 6.45 percent in early trade.

Spain has no bond sales scheduled before Sept. 6 and some analysts say once the ECB decides to intervene, it could do so forcefully, resulting in much lower costs of borrowing for these countries than would otherwise be the case.

"If the euro zone can agree then it will potentially lead to significant intervention in the markets," Gary Jenkins, managing director of Swordfish Research said in a note.

Commodities Eye Payrolls

Speculation that weak U.S. payrolls data may prompt the U.S. Federal Reserve into a third round of bond purchases at its next policy meeting in September kept commodity prices firmer.

The report is forecast to show a rise of 100,000 in July, after an 80,000 increase in June, with the unemployment rate seen static at 8.2 percent.

"If we get a good number, it shows the (U.S.) economy's maybe better than we thought. If we get a bad number, then people think it's going to force the Fed's hand to do more," David Jones, chief market strategist at IG Index said.

Brent crude gained 79 cents to $106.69 per barrel and on track for its highest close in two weeks. U.S. oil rose 98 cents to $88.11.

Spot gold was up 0.3 percent at $1,594.76 an ounce, while U.S. gold futures for December delivery rose $7.10 an ounce at $1,597.80.

The precious metal is down nearly 2 percent this week, and on track for its biggest weekly loss in six weeks, as demand from key markets in Asia fades.

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