European stocks rebounded Tuesday after sharp losses the day before on fears about Europe's debt crisis. But rising borrowing costs at bond auctions for Spain and Italy showed that debt fears still stalk the eurozone.
The Stoxx 50 index of European blue chips closed up 0.8 percent at 2396.85 while Germany's DAX added 1 percent to 6590.41, France's CAC-40 jumped 2.3 percent to 3169.32 and the London FTSE climbed 0.8 percent to 5709.49. The euro was up 0.4 percent at $1.3201.
Stocks recovered some ground following a rough day Monday as investors absorbed weekend political developments that raised doubts about Europe's path out of debt _ doubts that haven't gone away.
Prime Minister Mark Rutte's government in the Netherlands collapsed when it could not agree with a key allied party on budget cuts to bring the deficit below the EU-mandated 3 percent. In France, Socialist Francois Hollande led the first round of presidential elections; he has vowed to renegotiate a European treaty tightening rules on debt.
Wall Street moved higher on good corporate earnings from Hershey, 3M and AT&T, with the Dow industrials average up 0.6 percent at 13,000.47 and the Standard & Poor's 500 up 0.3 percent at 1,370.89 in afternoon trading New York time.
Headwinds from Europe's debt crisis made themselves felt again on Tuesday at Spanish and Italian bond auctions. Yields on Italian two-year bonds jumped a full percentage point to 3.36 percent from 2.35 percent a month earlier. Yields also spiked at a Spanish auction of short-term debt, rising to 0.634 percent on three-month bills from 0.381 percent and to 1.580 on six-month bills from 0.836 a month ago.
Rising borrowing costs are a key driver of the debt crisis. Bond investors demand higher yields to compensate for what they perceive as increased risk of losses on a country's debt. Both Italy and Spain are struggling to convince markets they can pay their debts despite shrinking economies. Prime ministers Mariano Rajoy in Madrid and Mario Monti in Rome are trying to cut deficits and push through reforms to their countries rules on hiring and firing people to make them more business friendly. Those reforms take time, and meanwhile countries must borrow to pay debt as it comes due.
High borrowing costs have already pushed Greece, Ireland and Portugal to take bailouts, but Spain and Italy are much bigger _ the No. 3 and No. 4 eurozone economies _ and could easily overwhelm the eurozone's rescue fund.
Asian stocks slumped early Tuesday amid all the distraction from Europe, but some key benchmarks found their footing by the close.
Japan's Nikkei 225 index closed down 0.8 percent at 9,468.04 and South Korea's Kospi lost 0.5 percent to 1,963.42. Australia's S&P/ASX 200 added 0.2 percent to 4,360.40. Hong Kong's Hang Seng rose 0.3 percent at 20,677.16 and benchmarks in Singapore, Taiwan, Thailand and Indonesia also finished higher.
In mainland China, the benchmark Shanghai Composite Index was virtually unchanged at 2,388.83 while the smaller Shenzhen Composite Index lost 0.9 percent to 936.51.
Pamela Sampson in Bangkok contributed to this report.
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