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EU deal lifts euro, cuts debt yields

Friday, June 29, 2012 - 02:01

June 29 - European shares jump to one-week highs after euro zone leaders agreed to take action to bring down Italy's and Spain's borrowing costs, surprising a market that had been primed for disappointment. Hayley Platt reports.

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Market relief is nothing new but there are hopes this time it might last a little longer than previous post-summit rallies. The euro surged over 1 percent and shares across Europe and Asia jumped. SOUNDBITE: Fidel Peter Helmer, trader with Hauck & Aufhaeuser Private Bank, saying (German): "The compromise came surprisingly fast, it didn't look like it yesterday afternoon. The markets like the decision to give banks direct access to the ESM bailout fund. And we saw that with the DAX opening 2 percent up." Ten year Spanish and Italian bond yields fell as did safe-haven German bunds and the dollar. The FTSE Eurofirst 300 was up 1.6 per cent at midday with euro zone banks up 4.6 percent. UK banks only managed a 1 percent rise - they were hit by news Barclays, Lloyds and RBS will pay compensation to customers over product mis-selling. And there are still major concerns about the euro zone longer term. In particular the firepower of the rescue funds which have to stabilise a 2.5 trillion euro Spanish and Italian bond market. And the ongoing credit crunch. That's where the ECB comes in, says Holger Schmieding, chief economist at Berenberg Bank. SOUNDBITE: Holger Schmieding, chief economist, Berenberg Bank, saying (English): "The European Central Bank should cut rates, it should offer significantly more liquidity on very generous terms to banks and ideally it should also provide a safety net for sovereigns by doing something like the quantitative easing which we have seen and are seeing in the UK. U.S. and Japan." But the relief was certainly welcome as the market has had a torrid few days. It dropped nearly 3 percent on expectations the summit would amount do little. Investors will now be watching whether the theory can be put into practice. Hayley Platt, Reuters.

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EU deal lifts euro, cuts debt yields

Friday, June 29, 2012 - 02:01