European deal ignites rally in stocks and euro

 
City A.M. Reporter
World stocks have surged and the euro has jumped to a seven-week high against the dollar after European leaders agreed on a sweeping plan to resolve the Eurozone sovereign debt crisis.

The investor euphoria sent European shares more than three per cent higher while US stocks gained about two per cent. The deal envisions a recapitalization of European banks, a far more powerful rescue fund for the Eurozone and 50 per cent losses for Greek debt holders.

For the moment investors shrugged off the fact that key aspects of the deal, including the mechanics of boosting the firepower of the European Financial Stability Facility and providing Greek debt relief, could take weeks to pin down.

The euro, surging past stop-loss points as investors reacted positively to the deal, gained 1.73 per cent to $1.4123.

"Investors around the world are cheering the fact that the Europeans have sucked it up and done what was necessary to mitigate a deeper crisis in the region," said Kathy Lien, director of research at GFT in Jersey City, New Jersey.

"Their sheer relief that the process hasn't been drawn out even further ... has provided a nice boost to risk appetite."

Data that showed the US economy grew at its fastest pace in a year in the third quarter as consumers and businesses stepped up spending also helped spur risk appetite.

US gross domestic product expanded at a 2.5 per cent annual rate in the third quarter, the Commerce Department said.

World stocks extended gains to hit their highest level since early August, with the MSCI all-country equity index rising 3.2 per cent and Europe's FTSEurofirst 300 index of top regional shares surging 3.2 per cent.

On Wall Street, the Dow Jones industrial average has gained 2.9 per cent, while the Standard & Poor's 500 Index and the Nasdaq Composite Index have risen by 3.5 per cent.

Wall Street's "fear gauge," the CBOE Volatility Index, fell 12 per cent in a sign of improving investor sentiment.