GLOBAL MARKETS-Stocks and euro climb on Spain’s budget

by on September 27, 2012 6:59 pm GMT

Thu Sep 27, 2012 2:59pm EDT

* Spain 2013 budget focuses on spending cuts vs tax hikes

* U.S. economic data mixed

* Crude oil above $110 on Iran tensions

NEW YORK, Sept 27 (Reuters) – Stocks advanced and the euro
recovered from two-week lows on Thursday after the Spanish
government said it would cut spending sharply and opened the
door for a potential European bailout.

Spain’s Deputy Prime Minister Soraya Saenz de Santamaria
announced a timetable for economic reforms and a tough 2013
budget focused on spending cuts rather than tax increases as the
country continues to negotiate a possible European aid package
to ease high borrowing costs.

Officials said Spain was still analyzing the terms of the
potential European Central Bank bond-buying program announced
earlier this month and added that a decision on an aid request
will be taken when the effect of the spending cuts is fully

“If there’s a solution where (Spain) can lower their yields,
then there’s a possibility Spain will find a way to pull
themselves out of this mess. Stocks are popping on this, and so
is gold,” said Mike Matousek, senior trader at U.S. Global
Investors in San Antonio.

The euro, which has lost more than 1.6 percent over
the last two weeks, rose to $1.2912, up 0.3 percent, after
hitting a low of $1.2830 earlier in the day.

Talk on Thursday that the China Securities Regulatory
Commission would announce steps to support beleaguered domestic
markets was also positive for relatively risky investments.

The MSCI world equity index was up 1 percent
at 333.99. European stocks rose 0.4 percent.

The Dow Jones industrial average was up 99.18 points,
or 0.74 percent, at 13,512.69. The Standard & Poor’s 500 Index
was up 15.97 points, or 1.11 percent, at 1,449.29,
snapping a five day decline. The Nasdaq Composite Index
was up 45.08 points, or 1.46 percent, at 3,138.78.

Spot gold rose to $1,776.94 per ounce and was on
track for its biggest one-day gain in two weeks.


Euro zone worries have come back into investor focus over
the last week as the stock market rally resulting from stimulus
announced by the Federal Reserve and ECB has given way to doubts
about whether Spain would submit to a politically painful rescue

Conscious that seeking help from EU partners would carry
conditions for budget savings that would be unpopular at home,
Spanish Prime Minister Mariano Rajoy had said he is not sure if
a bailout is needed.

Economy Minister Luis de Guindos said on Thursday Spain’s
measures and reform were fully coordinated with the European
Union framework and its recommendations on budget control.

“This is laying the ground for when the trigger will be
pulled at some stage, but it’s nothing like they can avoid the
trigger,” said David Schnautz, rate strategist at Commerzbank in
New York.

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

Spanish yields were slightly lower on Thursday at 5.959
percent, while the German 10-year Bund was flat at
1.465 percent.


A report showed U.S. durable goods orders fell more than
expected in August and another estimated second-quarter gross
domestic product growth came in below expectations. But a fall
in initial jobless claims in the latest week was taken as

Separately, the Labor Department said the U.S. economy
likely created 386,000 more jobs in the 12 months through March
than previously estimated, in a preliminary estimate of its
annual “benchmark” revision to closely watched payrolls data.

“You put it all together, a lot of this is backward-looking
data, some of this is more forward-looking,” said Tim Ghriskey,
chief investment officer at Solaris Group in Bedford Hills, New
York. “It’s certainly a negative but not a disaster at all.”

The benchmark 10-year U.S. Treasury note was
down 9/32, with the yield at 1.6404 percent.

Oil prices rose as renewed worries over supply disruptions
from the Middle East due to anti-Israeli and anti-Western
comments from Iran helped keep Brent futures above $110 a
barrel. Brent crude was up 1.9 percent
at $112.12. U.S. crude rose 2.2 percent to $91.97.