European stocks show slight rise despite currency fears

EUROPEAN markets recovered slightly yesterday despite escalating concern over the eurozone debt crisis and the very future of the single currency itself.

The latest in a string of underwhelming bond auctions saw the yield on six-month Italian bonds hit a record 6.5% and the interest rate for the country’s longer-term bonds go way above levels seen as being sustainable for a country’s finances.

The latest pressure to be heaped upon Italy — the third biggest economy in the eurozone — led European leaders to say that a debt collapse in Italy would spell the end for the euro.

“The market action surrounding the Italian auction provides additional precursory indications that the European government bond market is severely disrupted and it will likely struggle to absorb the demanding pipeline of refinancing that European sovereigns need to secure,” a Royal Bank of Scotland analyst told the Bloomberg news service yesterday.

Jens Weidmann — Bundesbank president and ECB council member — downplayed rising talk that the eurozone debt contagion is now officially spreading from the peripheral nations to core members; despite signs to the contrary — particularly Germany’s failed bond auction earlier this week.

But market sentiment was calmed yesterday amid speculation that policymakers are discussing proposals to drop private sector involvement from their permanent bailout mechanism.

In terms of market movements, Italy’s benchmark index was up by just over 0.1%. Having been the only climber amongst the headline European bourses on Thursday, the Borsa Italiana was yesterday joined in upward movement by London’s FTSE-100 (up 0.72%), the CAC-40 in Paris (up by 1.23%), Frankfurt’s DAX (up by 1.19%) and Spain’s IBEX-35 (up by 0.54%).

Good gains for the likes of CPL, Elan, Dragon Oil and Glanbia meant that Ireland’s ISEQ was marginally up again — but only by 0.4%, or nine points to 2,522 points. Significant falls came in the form of Kerry Group and Paddy Power, however.