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Markets respond well to Spanish rescue
Monday, 11th June 2012 07.32am

Shares, commodities and the battered euro jumped today after euro zone finance ministers agreed to lend Spain up to $125 billion to shore up its struggling banks, relieving markets that had feared a fiscal collapse in the country.

The relief may be short-lived though, as investors look forward to a Greek national election on June 17 that could put Athens on a path out of the bloc and precipitate a deeper crisis over the future of the euro.

The euro was on course for its biggest daily rally against the dollar in almost eight months after rising nearly 1 percent to $1.26694, its highest level since May 23, before retreating to trade at $1.2639.

European shares were set to soar, with spreadbetters predicting major European markets to open as much as 2.6 percent higher. U.S. stock futures were up 1.2 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.9 percent, on track for its biggest daily gain in almost 5 months, while Japan's Nikkei average added 2 percent, after sagging 2.1 percent on Friday.

"It was macroeconomics that lifted the markets this morning, as the EU stepped in to help Spain's banks," said Andy Du, director of the derivatives department at Orient Futures. "All eyes are still on Greece's upcoming elections but investors' worries over the euro zone has eased in the short term."

The Australian dollar, closely linked to risk appetite, gained as much as 0.9 percent to $1.0005, its highest rate since May 15, before falling back to $0.9982.

Brent and U.S. crude futures both rose more than $2 and London copper futures pushed nearly 3 percent higher to $7,506 a tonne. U.S. Treasury bond futures tumbled in Asia, reflecting the switch out of so-called safe haven assets to riskier ones. The 30-year contract was off 1-7/32 at 148-2/32. The 17-nation euro currency area agreed to lend Madrid up to 100 billion euros ($125 billion) for its bank rescue fund, more than an initial audit suggested it might need. No precise amount was set because Spain said it needed time for an independent assessment of the capital needs of its banking sector, which is due to be delivered in less than two weeks. The rescue for Spain's banks follows bailouts for Greece, Ireland and Portugal since 2010, and comes a week before a crucial election in Greece that could determine whether Athens will stay with the euro bloc. Analysts expect investors' appetite to buy stocks, commodities and other riskier assets to remain limited by the euro zone's broader problems. Its challenge of reducing high sovereign debts and pursuing fiscal austerity, while also achieving growth, will not be resolved anytime soon. The European Union action is going to be a temporary success because the Spanish crisis is mostly centred around its banks, said Richard Hastings, macro and consumer strategist at Global Hunter Securities. "The next phase of the Spain situation comes in six to nine more months when it becomes clear that Spain's economy has not improved, thus pointing to a wider realm of distress," Hastings said. ( C) Reuters

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