Rebound in German confidence helps dispel market gloom

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Germany registered a surprise rise in investor confidence off the back of last week's pact among European leaders to rescue the eurozone, triggering an upswing on stock markets.

Spain managed to borrow funds on the market at lower rates, which also dispelled some of the gloom over the latest measures to resolve the eurozone debt crisis that had sent shares tumbling on Monday.

The closely watched German ZEW economic expectations index showed a surprise rise of 1.4 points in December to stand at minus 53.8 points, the think tank said.

Analysts had been pencilling in a further decline after the index fell to minus 55.2 points in November, its lowest level since October 2008.

That was enough to send European shares higher. In mid-afternoon trade, London's FTSE 100 index of top shares was up 1.44 percent, Frankfurt's DAX 30 added 0.98 percent and the Paris CAC 40 rose 0.53 percent.

Milan gained 1.23 percent and Madrid edged up 0.23 percent.

The European single currency continued under pressure and fell below $1.31 -- its lowest since January -- from $1.3188 in New York late Monday.

GFT analyst David Morrison in London said "the German ZEW (investor confidence survey) came in better-than-expected and that has taken some of the downside pressure off European stock markets."

Barclays Capital analyst Thomas Harjes said "the latest ZEW figures add further evidence to our view that, following a soft patch and some negative growth in the fourth quarter of 2011, (Germany) will record modest, positive growth again in early 2012."

Spain meanwhile paid sharply lower borrowing rates in a 4.941-billion-euro sale of short-term government debt, with demand from investors strong at more than four times the original offer, a sign of improved confidence in its creditworthiness after months of financial turmoil.

However, the markets had plenty of reminders that investors remain concerned about the eurozone debt crisis.

Official data showed eurozone banks deposited the biggest amount of overnight funds at the European Central Bank for more than a year on Monday.

The level of deposits at the ECB is an indicator of the reluctance of banks to lend to each other on the key interbank market. Such a reluctance stems from concern about the capacity of the borrower to repay the loan.

In another clear signal of the worldwide impact of the crisis, the oil cartel OPEC and the International Energy Agency both revised their previous forecasts for global oil demand downwards, citing a slowdown in global growth.

That followed another gloomy assessment from one of the big three ratings agencies, Fitch, which said that global growth would slow to 2.4 percent next year. It also trimmed its forecast for 2013 to 3.0 percent from 3.1 percent.

"In Fitch's assessment downside risks dominate at this current juncture," it said. "In particular, financial tensions may intensify further in the eurozone."

Fitch said that despite most EU countries deciding last week to tighten budgetary coordination to resolve the debt crisis, "market tension remains high."

Robert Zoellick, president of the World Bank, struck a similarly downbeat note when he warned that the global financial system and economy was "fragile" and vulnerable to slashed government spending and contracting bank lending.

European leaders had hoped that Friday's agreement to move towards a fiscal pact, seeking to eradicate their public deficits under close EU supervision, would reassure markets nervous about their massive debts being repaid.

Jose Manuel Barroso, the president of the European Commission, acknowledged that Friday's pact would not be enough on its own.

"Fiscal discipline is of course key; but let me be frank on this -- we cannot build our economic union just on discipline and on sanctions: we also need a Europe of growth and of jobs," he told the European parliament.


© 2011 AFP

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