GLOBAL MARKETS-Euro, shares rally as ECB chief signals action

by on July 26, 2012 2:36 pm BST

Thu Jul 26, 2012 10:36am EDT

* ECB’s Draghi sends strong signal that ECB will act

* Euro back above $1.23 versus U.S. dollar

* European shares up more than 2 percent

By Rodrigo Campos

NEW YORK, July 26 (Reuters) – European Central Bank
President Mario Draghi’s comments that the bank would do
whatever was necessary to preserve the euro zone triggered a
rally in the euro on Thursday and pushed global stocks and
commodities higher.

At the same time Spanish bonds with 10-year yields
fell to 7.0 percent after touching 7.5 percent, a
threshold widely viewed as unsustainable for a government to
fund itself.

Draghi’s pledge to act within the ECB’s mandate to protect
the euro zone came as concerns grew that Greece would need yet
another bailout and Spain was close to asking for its own
rescue, which the euro zone could ill afford.

Speculation had been rising that the ECB, which holds a
policy meeting next week, was considering new measures to tackle
the euro zone’s debt crisis as Spain and Italy saw their
borrowing costs rise sharply amid growing evidence of an
economic slowdown in Europe.

“The overarching concern over the last week or so has been
that the euro zone is slowly melting into the Mediterranean,”
said Art Hogan, managing director of Lazard Capital Markets in
New York. “To have Draghi come out and say, ‘listen we are
keeping this together’ … is going to add support to the market
that is otherwise not there.

“Remember, though, that the ECB can’t do this alone; he’s
going to have to have support from Germany and we’ll see if
that’s forthcoming,” said Hogan.

Hopes that the Federal Reserve will boost efforts to
stimulate the U.S. economy, even as early as next week when its
policy-setting committee meets, gave further support to Wall
Street. Top Fed officials recently spelled out what measures
they might take to boost growth and hiring.

The Dow Jones industrial average rose 249.07 points,
or 1.96 percent, to 12,925.12. The S&P 500 Index gained
22.90 points, or 1.71 percent, to 1,360.79. The Nasdaq Composite
added 48.38 points, or 1.70 percent, to 2,902.62.

The FTSEurofirst was up 2.3 percent, its largest
daily gain in a month, and the MSCI world equity index
gained 2.1 percent after falling four sessions
in a row.

The euro edged above $1.23, also aided by data showing a
drop in U.S. pending home sales. Separate data earlier showed
U.S. applications for first-time unemployment insurance fell
last week to near a four-year low.

The euro was last up 1.2 percent at $1.2303 after
hitting its lowest in two years at $1.2040 on Tuesday.

“In a heavily biased market, it only takes a little bit of
news of the opposite sentiment to provoke quick moves,” said
Christopher Vecchio, currency analyst at DailyFX in reference to
Draghi’s comments.

Prices for safe-haven 10-year German bonds fell, as well as
for U.S. benchmark Treasuries. The 10-year U.S. Treasury note
was down 8/32, with the yield at 1.4226 percent.


Analysts said Draghi’s comments could be a reference to
plans to restart the ECB’s bond buying scheme, known as the
Securities Markets Programme (SMP), which has not been used for
months but still exists.

European Commission President Jose Manuel Barroso is due to
hold talks with Greek Premier Antonis Samaras in Athens later,
as a group of international lenders try to decide whether to
keep releasing funds from a 130 billion euro bailout package.


Brent crude oil prices rebounded to over $105 a barrel after
Draghi’s pledge to defend the euro zone. Other commodities also
saw big gains.

Brent was up 1.3 percent at $105.68 a barrel and
U.S. crude was up 1.5 percent at $90.31 a barrel.

Copper prices jumped 1.1 percent.