Europe debt plan hopes shores up markets

AP News
Posted: Oct 17, 2011 6:44 AM
Europe debt plan hopes shores up markets

Further signs that a big plan to deal with Europe's debt crisis will be announced within a week put markets in a positive mood Monday, but investors remain wary about whether an effective resolution can emerge over such a short period.

Over the weekend, finance ministers from the Group of 20 leading industrial and developing nations reiterated their belief that Europe, in particular Germany and France, are thrashing out a comprehensive plan to stabilize the debt crisis _ which is threatening to send the global economy back into recession and raising questions about the future of the euro currency itself.

As well as getting private bondholders, such as banks, to take a bigger loss on their holdings of Greek debt, the eurozone is expected to ramp up the size of its bailout fund, possibly to euro2 trillion ($2.76 trillion), and insist that many of the continent's banks raise money to shore up their capital base. There are also indications that the International Monetary Fund will be able to play a more hands-on role.

Over the past couple of weeks, stocks around the world have recovered much of the ground lost so far this year, on hopes that Europe was finally getting to grips with the debt crisis, which has already seen three countries require multibillion financial bailouts.

"Risk appetite is being supported by weekend reports that Germany and France are spearheading a 'shock and awe' programme," said Sue Trinh, an analyst at RBC Capital Markets.

In Europe, the FTSE 100 index of leading British shares was up 0.8 percent at 5,511 while Germany's DAX rose 1.1 percent to 6,030. The CAC-40 in France was 0.8 percent higher at 3,243.

Wall Street was also poised for a solid opening _ Dow futures were up 0.4 percent at 11,617 while the broader Standard & Poor's 500 futures rose 0.5 percent to 1,226.

Though sentiment remains supported for now, investors are aware of the failure of past efforts to come up with a comprehensive plan. Though lauded by European policymakers, previous attempts have not eased market concerns over the level of debt in a number of eurozone countries, notably Greece.

"The main point of focus will remain the Eurozone and what this Sunday's Eurozone summit will offer in the way of solutions, with markets clearly optimistic that something credible and immediately implementable will be on the table, despite the lessons of the past two years suggesting a hefty dose of scepticism is a prerequisite perspective," said Marc Ostwald, market strategist at Monument Securities.

As well as being buoyed by hopes of a big eurozone plan, markets have advanced because of mounting evidence that the U.S. economy may be getting over its summer soft patch that had raised fears that the world's largest economy may be heading back into recession.

As such, investors will be keeping a close watch on U.S. economic data, starting Monday with industrial surveys from the New York Federal Reserve and its counterpart in Philadelphia.

When investors are willing to back risky assets, the impact is felt all across financial markets.

In the currency markets, the dollar usually loses ground to the euro. That's certainly been happening over the past week or so and the euro remains well-supported at $1.3843, down 0.3 percent on the day. Not long ago, Europe's single currency was heading below $1.30.

Oil prices also perk up as investors price in a rosier economic outlook. Benchmark oil for November delivery was up $1.11 at $87.91 a barrel in electronic trading on the New York Mercantile Exchange

Earlier in Asia, stocks advanced mainly on the European debt hopes.

Japan's Nikkei 225 stock average finished up 1.5 percent at 8,879.60, hitting a six-week intraday high at one point. Hong Kong's Hang Seng jumped 2 percent to 18,873.99 while South Korea's Kospi rose 1.6 percent to 1,865.18 and Australia's S&P/ASX 200 climbed 1.7 percent to 4,275.40.