By Michele Maatouk and Andrea Tryphonides
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)–European stocks rose Thursday and the euro gained ground against the dollar, following well-received auctions by Spain and Italy, as investors await key rate and monetary policy announcements from the Bank of England and European Central Bank.
At 1100 GMT, the benchmark Stoxx Europe 600 index was up 0.6% at 251.44. London’s FTSE 100 was up 0.4% at 5691.67, Frankfurt’s DAX was up 1.5% at 6243.51 and Paris’s CAC-40 was 1.1% higher at 3238.54.
Spain sold just under EUR10 billion of bonds dated July 2015, April 2016 and October 2016–twice as much as the upper end of the target range. Meanwhile, Italy sold the targeted EUR12 billion in 12-month Treasury bills and borrowing costs came in sharply lower than at the previous auction.
“Today’s [Spanish] auction is more encouraging than we had anticipated,” said Newedge. “Dealers have not been stopped by the news that Spain will exceed its budget deficit target by 2% in 2011 and–at the current levels–definitely saw some value in Spain,” it said.
After the auctions, the 10-year Italian bond yield dropped 42 basis points to 6.56%, while the corresponding Spanish bond yield fell 11 basis points to 5.18%, according to Tradeweb.
The auctions also helped the euro to perk up, and by 1100 GMT the single currency was at $1.2758, from $1.2706 late Wednesday in New York.
Bunds hit session lows after the auctions, however, and by 1100 GMT the lead March 10-year bund contract was down 30 ticks at 139.05.
With much of the focus firmly on the auctions, investors largely shrugged off weaker-than-expected euro-zone industrial production data, which showed a 0.3% decline on the year in November, compared with estimates of a 0.3% rise.
In terms of sectors, bank and insurance stocks were providing support following comments from Fitch Ratings that it doesn’t expect the French government to provide capital to banks. ING Groep gained 5.7%, BNP Paribas was up 5.3% and UniCredit surged 9.3%.
Speaking at a conference in Paris, Fitch’s David Riley also said France isn’t viewed by the credit ratings company as a crisis country and it won’t be downgraded so long as its debt isn’t pushed up sharply.
Meanwhile, Royal Bank of Scotland gained 8% in London after investors embraced its restructuring proposals, which are largely focused on cutting back large parts of its investment banking unit.
Despite the positive tone, retailers were a massive drag Thursday, weighed down by London-listed Tesco, which slumped 14% after disappointing the market with a warning that profit growth in fiscal 2013 will be minimal. As a result, the supermarket will be investing hundreds of millions of pounds to improve U.K. sales. Tesco’s U.K. supermarket peers also slumped. Wm. Morrison Supermarkets fell 6.8% and J Sainsbury dropped 4.6%, but France’s Carrefour reversed initial losses to trade up just 0.1%. The FTSE 350 general retailers index was down 1.1% at 1506.11, while the Stoxx Europe 600 retail index dropped 4.8% to 237.50.
Investors are looking ahead to rate announcements from the Bank of England and European Central Bank. Colin Tan, research analyst at Deutsche Bank, said: “The market and Deutsche Bank expects the ECB to leave its refi rate unchanged. Focus will be on the post-meeting press conference… We expect the ECB to remain vague regarding future sovereign bond purchases but believe it will continue to intervene if conditions deteriorate.”
In the U.K., there is a risk that the BOE will approve more quantitative easing Thursday but Deutsche Bank’s house view is for the monetary policy committee to wait until early February before sanctioning more asset purchases.
Jitters about Greece continued to simmer in the background. The country might need to cut its debt by an additional EUR15 billion even after it completes a deal with private creditors for a 50% haircut, people familiar with the matter told Dow Jones Newswires Wednesday. However, at the same time Greek Finance Minister Evangelos Venizelos said talks with private sector creditors on the country’s debt write-down plan are “at a very good point.”
Earlier Thursday, Asian stock markets closed mostly lower as easing inflation in China failed to overcome worries over stresses in Europe’s economy. Japan’s Nikkei Stock Average finished down 0.7%, Australia’s S&P/ASX 200 fell 0.2% but South Korea’s Kospi Composite rose 1.0%. Hong Kong’s Hang Seng Index fell 0.3% and China’s Shanghai Composite was flat.
At 1100 GMT, the dollar was buying Y76.89, from Y76.85 late Wednesday in New York, while the pound was at $1.5341 from $1.5318, despite the release of weak U.K. data. Manufacturing output fell 0.2% on the month in November, in line with expectations, but the 0.6% year-on-year decline was worse than expected.
Among commodities, spot gold was at $1,653.50 a troy ounce, up $15.10 from its New York settlement on Wednesday. February Nymex crude oil futures were up $1.26 at $102.13 a barrel and March Brent futures were $1.32 higher at $113.38.
The Bank of England’s rate announcement is at 1200 GMT and the ECB’s is at 1245 GMT.
U.S. stock-index futures pointed to a moderately higher open on Wall Street, with the Dow Jones Industrial Average futures contract and the S&P 500 front-month futures contract up 0.4% at 12,435.00 and 1293.80, respectively.
-By Michele Maatouk, Dow Jones Newswires; +44-20-7842-9447; email@example.com