LONDON: Stocks gained, commodity prices rose and the euro clambered higher on Tuesday as strong demand for debt from around Europe reassured investors about the state of the euro zone's finances. Spain's Treasury raised 5.2 billion euros at its 12- and 18-month T-bill auction on Tuesday, while Belgium raised 2.5 billion euros in a heavily oversubscribed auction, and Ireland sold 1.5 billion in bonds.
That eased anxiety over the state of the euro zone's debt situation, although the yields countries have to pay are still sharply higher than a month ago and Moody's downgrade of Greece to junk status on Monday had kept markets on edge.
The euro briefly fell after the ZEW indicator showed German investor sentiment slumped much more than expected in June, but the move was quickly reversed as investors chose to focus on more positive indicators. European shares were up for a fifth consecutive day, with the FTSEurofirst 300 up 0.4 per cent, with more cyclical sectors like banks among the strongest performeers.
"S&P had already downgraded Greece to junk, so the Moody's news was less significant, and the ZEW survey was weak but other survey data has been relatively good," said RBS currency strategist Paul Robson. DATA SHRUGGED OFF World stocks, gained 0.1 per cent, up for a sixth day, while MSCI's main emerging market stock index, which is up around 9 per cent since hitting a year low on May 25, also added 0.1 per cent.
The euro, which was languishing at a low since 2006 of $1.1876 last week, gained 0.4 per cent to $1.22.63. "There is enough to stop people from aggressively selling euro/dollar, and what doesn't go down will tend to go up," Robson said. Miners and energy stocks were also firmer as base metals like copper gained and crude rose to around $76 per barrel. US Treasuries were softer as demand for the safe-haven asset eased.
T-notes futures fell 6/32 in price to 120-00/32, but remained above its 10-day low around 119-7.5/32 hit in Monday US trade. While governments managed to raise funds by selling bonds, lingering concerns kept investors relatively cautious.
Moody's cited "macroeconomic and implementation risks" in Greece's draconian austerity programme, reviving persistent doubts about Athens' ability to repay its debt. Spanish Treasury Secretary Carlos Ocana admitted officially for the first time on Monday that some Spanish banks were facing a liquidity freeze in the interbank market. Others were also worried about the outlook for the economy and its impact on stocks.
"What's important for the stock exchange is the profit outlook for companies and that is related to economic growth. If economic growth falters in the second half of this year then you can cross-out that provision."
