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GLOBAL MARKETS-Shares edge higher, euro flat

by on September 27, 2012 1:30 pm GMT
 

Thu Sep 27, 2012 9:30am EDT

* FTSEeurofirst 300 up 0.6 percent as Spain budget looms

* Euro off 2-week low vs dollar, yen near 1-week high vs
dollar

* Commodities, gold recover as dollar index inches lower

By Marc Jones

LONDON, Sept 27 (Reuters) – Global shares reclaimed some of
the previous day’s sharp losses and the euro steadied on
Thursday, boosted by hopes Spain’s budget could nudge Madrid
towards a rescue programme and allow the ECB to launch its
eagerly awaited new bond-buying bazooka.

Euro zone worries have roared back into focus over the last
week as the feel-good factor of recent central bank stimulus has
given way to renewed uncertainty over euro zone debt and Spain’s
willingness to submit to a politically painful rescue programme.

Violent anti-austerity clashes and signs of political back
peddling on burden sharing promises saw European shares
suffer their biggest one-day falls since late
July on Wednesday.

By 1300 GMT as markets waited on news of new spending plans
from Spain, the FTSEurofirst 300 had recovered around a third of
the lost ground to stand 0.6 percent higher at 1105.48 points
and the MSCI global index of shares was up 0.4 percent.

U.S. stock index futures pointed to a positive open on Wall
Street following five straight days of losses after Asian
equities had gained on growing hopes China’s government will
step in to bolster slowing economic growth.

“I think … a few opportunistic buyers have been creeping
in, on the hope that Spain might just push the bailout button,”
said Angus Campbell, head of market analysis at Capital Spreads.

“If that happens, I can only imagine you’ll see risk assets
rise.”

The gains came despite weaker than expected euro zone
economic confidence and lending data which underscored the heavy
toll the bloc’s debt troubles are taking on the economy.

Nervous eyes were focused firmly on Spain’s spending cut
plans due shortly. Spanish Prime Minister Mariano Rajoy’s
government will lay out budget figures and new spending cuts in
what will be a busy two days in Madrid. It was not clear when
the announcement might come, as a cabinet meeting continued.

New stress tests on Friday will also spell out how much more
money will be needed to strengthen Spain’s shaky banking sector
and it also faces the prospect of possible sovereign downgrade
by ratings firm Moody’s.

“The Spanish budget and whether that is linked to a request
for aid is what everybody will be looking at today,” said Aline
Schuiling at ABN Amro.

“Mr Rajoy appears to be trying to resist making the request
but, as we have seen, the yields are back above 6 percent and I
think the markets certainly have the power to force his hand.”

BOND LULL

Protests in Spain and Greece against austerity measures had
roiled markets on Wednesday, sending 10-year Spanish bond yields
back above the 6 percent threshold.

Bond markets were largely steady ahead of Rajoy’s budget.
Spanish yields were slightly lower at 6.08 percent while German
Bund futures were flat at 141.48 following solid gains
in previous sessions.

“Nothing that I read on Spain says to me that they’re going
to do the budget and then they’re going to apply for aid
straight away,” one trader said.

“And whatever numbers they put up, I would be sceptical
about them. The whole of Europe seems to think that we’re going
to return to growth next year, which I think is questionable.”

Conscious that seeking help from EU partners would carry
conditions for budget savings that would be unpopular at home,
Rajoy has said he is not sure if a bailout is needed and has
made clear he is in no hurry to ask for one.

FX CALM

Ahead of the open on Wall Street, S&P 500 futures
rose 6.8 points, Dow Jones industrial average futures
added 65 points and Nasdaq 100 futures rose 13.5 points.

Moves in currency markets were also limited ahead of Spain’s
budget enouncement. The euro, which has lost more than
1.6 percent over the last two weeks, was broadly flat on the day
at $1.2800.

The dollar was a touch lower at 77.70 yen, inching
back towards a seven-month low of 77.13 yen hit on Sept. 13, the
day the Federal Reserve announced a new round of monetary
stimulus.

“All eyes have been on Spain for the last week or so. We
have had a big shift in euro positioning recently, so going into
the budget investors are probably positioned fairly neutral,”
said Michel Sneyd, FX strategist at BNP Paribas.

Mitul Kotecha, head of global foreign exchange strategy for
Credit Agricole struck a similar tone: “I think eventually we’ll
crack through the 200-day moving average and move lower, with
the euro/dollar likely to test below the $1.28 level,” he said.