World shares climb higher

 

World stocks clawed back some recent losses and the euro firmed today as investors paused from their selloff of riskier assets triggered by debt crises in the euro zone and United States.

Gold, however, continued to attract safe-haven investment flows, rising for the sixth session in a row to around $1,604 an ounce.

Investors were still cautious ahead of a key meeting to address the euro zone debt crisis on Thursday.

Italian and Spanish bonds, now in the maelstrom as euro zone debt problems spread, firmed slightly after 10-year yields vaulted 6 per cent yesterday.

Investors were focusing on the euro zone summit, hoping it will complete a second bailout for Greece in an attempt to stop the sovereign debt crisis from seriously infecting larger countries, notably Italy and Spain.

Stakes are high with the scope for serious market trouble if Europe's leaders fail to provide a definitive plan.

On euro zone bond markets themselves, safe-haven German bond prices fell and Italian and Spanish bonds prices rose slightly, with some profit taking on the core debt.

Irish bonds rose slightly today, with the yield on the 10-year bond falling to 13.6 per cent, and two-year yields at 22.677 per cent.

France is increasingly under fire in the market sell-off that has deepened Europe's sovereign debt crisis. French stocks are down some 7 per cent so far in July closer to the 8-9 per cent fall seen in the euro area's other highly indebted countries than a 2-per cent dip in Germany.

Yields for its bonds, long viewed alongside Germany as benchmarks for European government borrowing rates, have jumped to as much as 74 basis points above Berlin's 10-year paper.

Analysts say the fall is likely to deepen because of the country's exposure to Italy. France will also have to bear the burden of further financial assistance to Greece, which needs a second multi-billions bailout package, and potentially others like Portugal and Ireland.

France "is being meshed into the contagion," Philip Lawlor, investment strategist at Smith & Williamson in London, said.

"The sting in the tail could be that the last thing that the market wants to see is France and Germany commit enormous amount of fiscal transfer. Given that the French economy is not doing fantastically well ..., I wonder whether credit ratings agencies will then turn around to France and say, I am not sure that your triple-A rating is as robust, and put a warning on it."

"You can argue that the summit isn't really focusing on the matter in hand to a degree. There's a risk we could get some disappointment in terms of help for Spain and Italy if the crisis gets worse on Thursday," one bond trader said.

"Spain especially is at very pronounced yield levels. Systemic risk is definitely the danger into the end of the week."

Risk aversion among investors has also been stoked by the approaching US August 2nd deadline on the federal borrowing limit. Political leaders in Washington are still at an impasse.

Investors for the most part appear to be assuming that the US debt ceiling will be lifted and a default averted, with the 10-year Treasury yield camped comfortably below 3 per cent.

The Standard and Poor's 500 Index jumped 0.9 per cent to 1,317.64 at 11.35am in New York as a bigger-than-forecast increase in housing starts also boosted equities. The Stoxx Europe 600 Index added 0.8 per cent.

The SandP GSCI index of 24 commodities advanced 1.4 per cent as oil surged 2 per cent to $97.82 a barrel.

"We can expect a relatively strong (stock) rebound if we get a political solution to the debt crisis on Thursday, a solution that would please the market," said Christophe Brule, president of Entheca Finance. "Without an adequate solution, the market could drop another 10-15 per cent."

Japan's Nikkei closed down 0.85 per cent.

The euro crept up against the dollar and other currencies, with investors torn between debt concerns on both sides of the Atlantic.

"Euro/dollar is trapped between the euro zone debt crisis on one side and questions surrounding the US debt ceiling on the other, and the market doesn't want to take on any major positions," said You-Na Park, currency strategist at Commerzbank in Frankfurt.

The euro was at $1.4165 .

Reuters