Europe stock markets extend gains on Greek hopes

Reuters, Thursday 15 Sep 2011

Shares climb on signs euro zone leaders are committed to Greece rescue, but some see surge as little more than a relief rally

Stock markets rose for a third day on Thursday and the euro gained, helped by signs that euro zone leaders are committed to keeping Greece in the euro and will likely issue its next tranche of aid.

European markets rose almost 2 per cent , with banking shares recovering from an initial dip on news of a US$2 billion loss for Swiss bank UBS due to unauthorised trading by a London-based employee.

Wall Street looked set to open around half a percentage point higher .

Worries over the euro zone crisis and a global slide into recession have hammered shares since late July and there was little conviction this week's gains were anything other than just a breather.

"Given the fact that we are not seeing much more than rhetoric at the moment, many people are still expecting Greece to default and see the move up as nothing more than a relief rally," Zahid Mahmood, trader at Capital Spreads, said.

French and German leaders urged Greece's prime minister in a conference call late on Wednesday to meet the terms of its new bailout and said they were determined to keep the country in the euro zone.

A Greek government official said afterwards that Athens looked set to get approval from EU and IMF inspectors for the issue of its next tranche of debt.

EU economic affairs chief Olli Rehn said Greece had made progress in meeting fiscal targets and a senior German lawmaker also sounded positive noises. Spain added to the mix by successfully placing bonds, albeit at relatively high yields.

At 1209 GMT, European stocks were up 1.8 per cent, reflecting strong gains for all the major markets and a 1 percent higher close for Wall Street overnight .

World stocks gained 1.0 per cent, helped by Japan's Nikkei share average closing 1.8 per cent higher.

The euro gained sharply on the assurances from the Greek conference call but still looked set to stay weak on worries about Athens' ability to avoid a debt default in the months ahead.

European finance ministers have been warned confidentially of the danger of a renewed credit crunch as a "systemic" crisis in euro zone sovereign debt spills over to banks, according to documents obtained by Reuters on Wednesday.

Market players, spooked by fears a default in the euro bloc could unleash a financial crisis, remain ready to sell the currency and risk assets into any rally. The single currency was up on the day at 1.3802 to the dollar, just off earlier highs.

"The comments from Merkel and Sarkozy have supported sentiment in the short-term but there's not much scope for a serious improvement in attitudes towards the periphery or overall growth conditions in the euro zone right now," said Manuel Oliveri, currency strategist at UBS in Zurich.

"It's also quite likely the ECB will need to take a more dovish stance so we don't think the euro will stay supported for long," he added.

The improvement in tone hit many perceived safe-haven assets, including the dollar and U.S. Treasuries and German Bund futures .

Oil traded above $114, although the upside was capped as the market awaited a bundle of data from the United States for an update on the progress of the economic recovery.

Brent crude gained 1.8 per cent while U.S. crude was 0.4 per cent higher at $89.3.

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