US stocks rise on back of euro deal

US stocks surged yesterday, the last day of a weak quarter, as European leaders agreed directly to shore up troubled European banks, offering some relief to investors worried about a eurozone meltdown.

The broad rally of 2% gave the S&P 500 its best day in three weeks and helped the benchmark index trim its quarterly loss to about 4%. It is the first down quarter for the S&P 500 since the third quarter of last year after inconclusive Greek elections and fears about the solvency of Spanish banks created turbulence in financial markets around the world.

Crucially, eurozone leaders agreed countries would be able to recapitalise banks directly without increasing a country’s budget deficit, and without preferential seniority status. Such a move avoids the trap that markets fell into when policy makers bailed out Spanish banks to the tune of €98.75bn, but ended up further extending the indebted Spanish state and shunting existing bondholders down the food chain.