December 1, 2010

Strong Portugal Bond Sale Fuels Europe Market Surge

Euro rises against dollar in wake of sale

European markets soared as Portuguese bonds made a strong showing at Wednesday’s sale, despite euro zone concerns for the nation’s financial stability. Demand for short-term 12-month T-bills was healthy, raising 500 million euros. The yield investors wanted, however, was high, according to a Reuters report.

On the other hand, the spread for 10-year Portuguese bonds against German 10-year Bunds dropped by 22 basis points, as Portugal rose above an overnight warning by Standard & Poor’s that it might downgrade Lisbon’s credit rating.

In Europe, the FTSE 100 index in London was up 114.23 points, or 2.07%, at 5,642.50. The CAC 40 in Paris was up 58.85 points, or 1.6%, to 3,669.29 and the DAX in Frankfurt rose 178.14 points, or 2.7%, to 6,866.63. The Euro Stoxx 50 index, a barometer of euro zone blue chips, was up 70.88 points, or 2.67%, to 2,721.87.

Doubts about the survival of the euro itself have been growing as world concerns have jumped from Ireland to Portugal and now seem to be moving toward Spain and even Italy. Germanyis opposed to sinking more money into successive bailout measures, with talk of allowing the multinational currency to fail, and has refuted claims that it might be willing to participate in a possible joint euro zone bond. Berlin has also been opposed to the idea of a “fiscal union,” in which individual nations’ sovereignty would be subordinate to the common welfare.

However, other members of the euro zone are increasing pressure on Germany. On Wednesday, Carolos Pina, Portugal's treasury secretary, said in a Reuters report that the European Union (EU) needed to "deepen its budget and create a European Treasury" to defend the euro. Germany is firmly opposed to such a move.

The euro rose to $1.3179 against the dollar after three straight days of losses and closed at $1.3107. U.S.stocks rose 2% in midday trading on the news that the EU might take drastic measures to stop the spread of contagion.

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