Stocks, euro rise ahead of Irish budget vote, eurozone promise to support bailout fund in need

Carlo Piovano, AP Business Writer, On Tuesday December 7, 2010, 5:37 am

LONDON (AP) — European stock markets and the euro rose Tuesday after eurozone nations did not rule out increasing their bailout fund in the future and Ireland was expected to pass a deficit-cutting budget. The U.S. government’s consideration of an extension to some tax cuts and unemployment benefits also helped.

Though the 16 euro nations said they would not refuel their euro750 ($1 trillion) financial backstop now, they left the door open to increases in case of need. The fear is that if larger countries like Spain or Italy need rescuing in the future, the current fund would be insufficient.

European indexes opened higher, with Britain’s FTSE 100 up 0.6 percent at 5,807.40. Germany’s DAX up 0.6 percent at 6,998.26, having traded above the 7,000 mark for the first time since the summer of 2008, when Lehman Brothers’ collapse unleashed the worst of the global financial crisis.

France’s CAC-40 was up 1.0 percent at 3,786.17, while Asian indexes closed mostly higher.

Wall Street was expected to rise on the open, with Dow futures up 0.4 percent at 11,403 and Standard & Poor’s 500 futures 0.6 percent higher at 1,228.80.

Stocks were boosted overnight after President Barack Obama said in a speech that he would help lawmakers reach an agreement to extend Bush-era tax cuts and unemployment benefits. That offset jitters created by comments from Federal Reserve Chairman Ben Bernanke, who said the economic recovery is still struggling to become “self-sustaining” without government help.

The main focus, at least in Europe, remained the eurozone’s debt crisis. A meeting of eurozone finance ministers offered no new measures to contain the turmoil, but markets improved nevertheless on indications that the bailout fund would be boosted in size in case of need.

Expectations that Ireland would pass a budget of sharp austerity measures later in the day also helped sentiment. The budget, the toughest in the country’s history, will cut spending by euro4.5 billion ($6 billion) and raise taxes by euro1.5 billion ($2 billion) .

“Market focus will swing back Dublin’s way today with the budget for 2011 under discussion,” said Daragh Maher, an analyst at Credit Agricole CIB.

The government has only a slim majority, but the budget is expected to pass after the government promised to hold early elections. Ireland is due to begin borrowing soon from a euro67.5 billion ($90 billion) bailout fund unveiled last week to help it cope with a massive banking crisis.

In Asia, China’s benchmark Shanghai Composite index rebounded from early losses to gain 0.7 percent to 2,875.86, despite speculation that Beijing may hike interest rates soon. Hong Kong’s Hang Seng Index also bounced back to rise 0.8 percent to 23,428.15.

China, a key growth driver for the world, is grappling with how to douse rising prices and cool its still red-hot economy without causing too fast a slowdown. November inflation, which analysts say might show a further increase, is due out Monday.

The inflation rate spiked to 4.4 percent in October — well above the official 3 percent target — driven by a 10.1 percent jump in food costs.

“The market does not fear an interest rate hike,” Francis Lun, general manager of Fulbright Securities in Hong Kong, said of the Shanghai market’s rebound.

Japan’s Nikkei 225 stock average fell 0.3 percent to 10,141.10 as investors sold shares in exporters on the strength of the yen against the dollar. A stronger yen reduces the value of exporters’ overseas profits when repatriated.

South Korea’s Kospi rose 0.5 percent and Australia’s S&P/ASX 200 added 0.8 percent, thanks to buying in natural resource-related issues.

Australian mining giant BHP Billiton Ltd. rose 1.2 percent, while rival Rio Tinto Ltd. gained 1.6 percent.

Declining indexes included benchmarks in New Zealand, the Philippines and India.

In currencies, the dollar slipped to 82.63 yen from 82.67 yen late Monday, paring earlier losses. The euro stood at $1.3387, up from $1.3304.

Benchmark oil for January delivery shed 25 cents to $89.13 a barrel in electronic trading on the New York Mercantile Exchange. The contract hit $89.76 on Monday before pulling back to settle at $89.38, up 19 cents.

Associated Press writers Kelly Olsen in Seoul, Tomoko Hosaka and Shino Yuasa in Tokyo, Joe McDonald in Beijing, Eileen Ng in Kuala Lumpur, Malaysia, and AP researcher Ji Chen in Shanghai contributed to this report.

source: Yahoo finance

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