By Stephen Kirkland Sept. 21 (Bloomberg) -- Spanish and Irish bonds rallied and the euro strengthened against all but one of its 16 most-traded peers after the countries sold debt. Stocks and U.S. index futures rose and rubber climbed to a five-month high. The yield on the Spain’s 10-year bund dropped 5 basis points to 4.19 percent at 10:30 a.m. in London, with the similar-maturity Irish security yield down 21 basis points to 6.33 percent. The euro appreciated 0.6 percent to $1.3134. The MSCI World Index of stocks in 24 developed nations added 0.2 percent, while futures on the Standard & Poor’s 500 Index rose 0.1 percent. Rubber futures climbed as much as 3.2 percent. Spain sold 7 billion euros of bills a day after the yield spread between German bunds and Portuguese and Irish debt widened to a record. Ireland offered four- and eight-year bonds today as the government seeks to convince investors the country can avoid a European Union bailout. The U.S. Federal Reserve meets today to discuss its interest-rate policy. “We’ve seen in recent days a resurgence of sovereign-debt concerns fueling risk aversion, so the fact that these countries can successfully carry out bond auctions can be nothing but a positive sign,” said Francisco Salvador, a strategist at Iberian Equities in Madrid. “We still have to wait to see what the Fed says. That will be key on sentiment.” Ireland sold 1.5 billion euros ($1.95 billion) of bonds repayable in 2014 and 2018, with investors bidding for more than five times the amount of bonds available. Spain sold 12-month bills at an average yield of 1.908 percent, compared with 1.836 percent at an auction on Aug. 17, and 18-month bills at an average yield of 2.146 percent, compared with 2.078 percent at the prior sale. Spreads Narrow The decline in Irish 10-year bond yields left them 3.79 percentage points higher than German bunds of similar maturity. The spread rose to a record 4 points yesterday. The spread on 10-year Portuguese bonds narrowed by 15 basis points to 3.81 points over bunds, after central bank Governor Patrick Honohan said the government needs to cut the budget deficit at a faster pace to shore up investor confidence. The Spanish 10-year gap with bunds shrank by 6 basis points to 1.7 points. The cost of credit-default swaps to insure European sovereign debt declined, with contracts on Ireland dropping 24 basis points to 421.5, Spain falling 2 basis points to 234, Greece down 11 basis points at 833 and Italy slipping 1 basis point to 193, according to data provider CMA. Safran, Cairn Energy The Stoxx Europe 600 Index gained 0.3 percent as more than two shares rose for every one that fell, while the MSCI Asia Pacific Index advanced 0.1 percent. Safran SA rallied 5.9 percent after Bank of America Corp. recommended buying the shares. Cairn Energy Plc climbed 3.4 percent after saying an exploration well in Greenland has found its first pockets of oil and gas. UniCredit SpA fell 1 percent as people familiar with the matter said Chief Executive Officer Alessandro Profumo may step down at a board meeting today after losing the support of some investors. The gain in U.S. futures indicated the S&P 500 will extend yesterday’s 1.5 percent rally to a four-month high. Housing starts in the U.S. probably increased in August for a second consecutive month, signaling the industry is stabilizing close to record lows, economists said before a report today. Work began on 550,000 homes at an annual pace, up 0.7 percent from July’s 546,000 rate, according to the survey median. The Commerce Department’s report is due at 8:30 a.m. in Washington. Rubber futures rose as high as 305.9 yen a kilogram ($3,574 a metric ton), the most since April 30, on the Tokyo Commodity Exchange. Cotton futures advanced as much as 2.5 percent to $1.0183 cents a pound on ICE Futures U.S. in New York. They reached a 15-year high of $1.0198 yesterday. Crude oil fell 0.5 percent to $74.47 a barrel on the New York Mercantile Exchange. To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net

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