-- Stocks, euro, oil and gold surge -- Hopes grow Greece PSI deal will be successful -- Italian and Spanish bond yields decline -- Eyes on Bank of England and European Central Bank rate decisions By Ishaq Siddiqi Of DOW JONES NEWSWIRES LONDON (Dow Jones)--European stocks, the euro and commodities surged Thursday, amid growing hopes that Greece will successfully complete its voluntary debt swap with private investors, which would clear the way for the country to receive the second tranche of its bailout funds. This also led Italian government bond yields to fall to their lowest levels since mid-2011, while Spanish yields declined sharply. Optimism that Greece will get the high participation rate of private-sector involvement that it requires in its bond swap to help cut its privately held debt burden has increased over the past 48 hours, with major banks and pension funds recently announcing their intentions to subscribe to the swap, said Joshua Raymond, chief market strategist at City Index. "Market speculation exists that there is a current 70% participation rate and this number is likely to increase throughout the day. This increase in optimism has helped to entice investors to buy into stocks with a higher appetite for risk," he said. Already, several important European financial institutions, such as Societe Generale, UniCredit and Munich Re, have agreed to take part in Greece's debt swap, boosting confidence that Greece will be able to pull off the deal. Big Greek banks, along with most pension funds, have also agreed to participate. The deadline to accept the Greek private-sector involvement offer is 2000 GMT Thursday, with the results due Friday at 0600 GMT. Against this backdrop, risk-related assets rose sharply in Thursday's session, while traditional safe havens, such as cover government bonds, fell. By 1121 GMT, the benchmark Stoxx Europe 600 index was up 1.4% at 263.74. Regionally, London's FTSE 100 index was up 1.3% at 5864.99, Paris's CAC 40 index was 2.1% higher at 3463.19 and Frankfurt's DAX was also 2.1% higher at 6813.73. Greece's ASE index added 1.4%, Spain's IBEX 35 rose 1%, while Italy's FTSE MIB gained 1.5%. Cyclicals paced the advance, with the Stoxx Europe 600 basic resources index up 2.6% and the corresponding index for banks up 2.1%. At the same time, the euro was fetching $1.3227 against the dollar, from $1.3150 late Wednesday in New York, while the dollar was at Y81.58, from Y81.08. In the metals market, spot gold was back above $1,700 a troy ounce, last seen at $1,701.00, up $18.40 from its New York settlement Wednesday. Oil futures also rallied, with the Brent oil reaching a record high in sterling at GBP79.30 a barrel and a new record high in euro terms at EUR95.06 a barrel. By 1120 GMT, April Nymex crude oil futures were up 92 cents at $107.08 a barrel and April Brent oil futures were up $1.38 at $125.50 a barrel. By contrast, the June bund contract was down 28 ticks at 138.28. Meanwhile, Italian government bond yields fell to their lowest levels since mid 2011 and Spanish yields declined sharply. Italian and Spanish yields, which have crept up in recent days on fears the deal might falter, fell sharply. At 1121 GMT, the Italian 10-year yield sank 14 basis points to 4.79%, its lowest since June last year, and the Spanish 10-year yield fell six basis points to 5.01%. Despite the upbeat mood across Europe, in the longer term, concerns remain as the focus is expected to shift to other debt-ridden European peripherals, such as Portugal. "The immediate positive reaction will be overshadowed very soon with concerns over the macro environment and the effectiveness of EU firewalls to save the next in line," said Lloyds Bank Corporate Markets. Attention will also be on monthly policy meetings by the Bank of England and the European Central Bank. At the BOE's announcement at 1200 GMT, policy-makers aren't expected to make any changes to the U.K. central bank's key interest rate or the size of its stimulus program, but the rising price of oil is making the outlook for monetary policy increasingly uncertain. Similarly, at the ECB's announcement at 1245 GMT, though central bank isn't expected to announce new crisis-fighting measures, market participants will be watching ECB president Mario Draghi's comments on economy, the longer term refinancing operation and debate within the central bank about support measures. In terms of economic data, German industrial production got off to a strong start in January, beating market expectations, according to data released Thursday. Industrial output rose 1.6% on the month in January when adjusted for seasonal variations, beating the 1.2% median forecast in a Dow Jones Newswires survey of analysts. In stock market action, shares of European Aeronautic Defence & Space Co. surged 9% after the company's fourth-quarter net profit beat expectations, at EUR612 million. Nomura said the results and the company's cash position look very strong, while its order book is solid. In London, shares in supermarket retailer Wm Morrison added 2.5% after reporting better-than-expected full-year earnings and saying it expects growth to continue, despite a challenging trading environment in 2012. Meanwhile, Anheuser-Busch InBev was also having a good day, up 2.9% after it said net profit in the fourth quarter rose to EUR1.85 billion, beating analysts' consensus expectations for $1.61 billion. Elsewhere, shares in Belgian supermarket company Delhaize didn't fare so well, however, dropping 6.3% after its fourth-quarter earnings fell short of expectations. Italian utility Enel was also on the back foot, off 5.7% after reporting a drop in 2011 net profit and cutting its dividend for the year. Looking ahead, market participants will also get further clues on the state of the U.S. jobs market when initial jobless claims are released at 1330 GMT. Ahead of that, the Dow Jones Industrial Average front-month futures contract up 0.8% at 12,942.00 and the S&P 500 futures contract up by 0.9% at 1364.80. -By Ishaq Siddiqi, Dow Jones Newswires; +44-20-7842-9488; ishaq.siddiqi@dowjones.com

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