SPAIN’S BOND SALE SPARKS SANTA RALLY

 
Tim Wallace
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SPAIN’S borrowing cost halved yesterday, triggering a one-week high FTSE close and a jump throughout markets in Europe and across the pond.

The Dow Jones spiked to finish up 2.87 per cent in New York, with a cluster of positive economic data also contributing to a possible “Santa rally” before the holiday break.

US housing starts and permits for future construction soared to an 18 month high in November, while unemployment dropped in 43 states.

Back in Europe, Spain’s IBEX-35 stock index jumped 2.44 per cent, and Germany’s DAX rose 3.11 per cent.

Markets took heart from Spanish Prime Minister Mariano Rajoy’s tough stance on state debt. Rajoy was approved as PM by parliament yesterday after outlining sweeping spending cuts in his maiden speech on Monday.

Spain sold €5.64bn (£4.71bn) in three- and six-month bonds, smashing its €4.5bn target. Yields plummeted to 1.735 per cent on three-month debt, down from 5.11 in November, and 2.435 per cent on six-month debt, down from 5.227 last month.

Markets were also encouraged by improving German business confidence – the Ifo measure rose for the second consecutive month in December, from 106.6 to 107.2 – and French assertions that Britain will, in time, contribute more to the IMF.

Also adding to the optimism, European banks cut their use of the ECB’s one-week refinancing yesterday. Banks today get a chance to access the European Central Bank’s (ECB) first tranche of unlimited three-year loans.

However, Fitch has warned that a “gradualist” political approach to the crisis will lead to “further episodes of severe financial market volatility.”