London: European shares rallied and the euro clawed back from one-year low levels against the dollar on Thursday on news that a Greek debt bailout was close and positive results from top companies.
The markets and the single currency were pounded for two straight days after ratings agency Standard & Poor’s downgraded debt from Greece, Portugal and Spain, fuelling fears of contagion from the crisis in Athens.
But major European bourses returned to positive territory on Thursday after a top European Union official said talks on a multi-billion-euro bailout for Greece were nearing completion.
“Expectations of an announcement about a joint EU-IMF bailout of Greece within days have also helped soothe investor anxiety about an imminent Greek default,” said analyst Michael Hewson at CMC Markets.
“A number of positive corporate announcements and trading statements have also helped boost risk appetite, and seen leading shares across Europe push higher,” he said.
The markets were energised by positive earnings from German industrial group Siemens, chemical company BASF, Spanish bank Santander, British pay-TV giant BSkyB and global steel giant ArcelorMittal.
London won 0.56%, while Frankfurt added 1.0% and Paris rose 1.42%.
In the countries hit by the downgrades, Athens soared by more than 7%, Lisbon jumped by more than 4.5% and Madrid was up 2.69%.
Wall Street was also up in morning trading with the Dow Jones Industrial Average, the tech-heavy Nasdaq index and the S&P 500 each rising by more than one percent.
US shares had rallied overnight as the US Federal Reserve looked unlikely to raise interest rates in the very near future, after keeping borrowing costs ultra-low on Wednesday.
On the foreign exchange market, the European single currency rose to 1.3357 dollars, one day after striking 1.3115 — a level last seen in late April 2009.
The euro also regained ground against the Japanese currency, rising to ¥124.78 from ¥124.28 late Wednesday.
“Decent earnings data has helped support sentiment despite the ongoing crisis in Greece,” said analyst Jane Foley at online trading site Forex.com.
“That said, yesterday’s downgrade of Spain’s credit rating has heightened fears that contagion will spread potentially resulting in Spain and Portugal needing financial support.”
In Brussels, the EU’s commissioner for economic and monetary affairs Olli Rehn said that marathon talks with Greece were nearly complete. But he insisted that Athens had to take effective action.
“We are about to conclude the talks,” he said.
Pressure on Greek borrowing costs eased on Thursday in response to fresh pledges of support for an EU-IMF loan package worth up to €45 billion ($60 billion) in the first year alone.
The yield on the 10-year Greek sovereign bond slid to 9.04% from nearly 10% late Wednesday.
The rate, which indicates the interest the Greek government would have to offer to raise new money, had shot up above 11% at one point on Wednesday as fears of Greek debt default gathered momentum.
The yield on Spain’s 10-year sovereign bond also eased off to 4.07% from 4.127%.
At the same time, equities were boosted by news that business and consumer confidence in Europe struck a two-year high.
The Economic Sentiment Indicator hit 100.6 points in April across the 16 countries that share the euro currency, rising substantially from 97.7 in March, the European Union said.
The figure of 100 is described as the long-term average, which means anything above it represents optimism and anything below indicates concern for where the economy is going.
“The sharper-than-expected increase in eurozone economic confidence in April contrasts sharply with growing market concern that the Greek crisis may be spreading to other eurozone economies,” noted ING economist Martin van Vliet.
The eurozone debt crisis weighed more heavily in Asia on Thursday, with Hong Kong falling 0.81% and Sydney sliding 0.77%, while Tokyo was shut for a public holiday.