Markets stay supported by ECB hopes

LONDON (AP) ? Hopes that Europe is preparing to take new action to fight its debt crisis supported markets on Monday at the start of a week that could also see the Federal Reserve enact new measures to boost the U.S. economy.

Stocks, as well as the euro and the bond prices of Spain and Italy, have been buoyant since European Central Bank president Mario Draghi said last Thursday that the bank "is ready to do what it takes to preserve the euro. Believe me, it will be enough."

Those comments raised expectations that, at the very least, the ECB will ramp up its bond-buying program in the hope of keeping a lid on Spanish and Italian borrowing rates. The recent sharp rise in Spain's interest rates raised concerns that the 17-country eurozone hasn't the capacity to bail out its fourth-largest economy, and raised the specter of Italy needing financial help, too.

"There is no doubt that policy action is required given the escalation in the crisis and we think it unlikely that Draghi would endanger his reputation and credibility by not fulfilling expectations," said Neil MacKinnon, chief global strategist at VTB Capital.

In Europe, Germany's DAX rose 0.8 percent to 6,743 while the CAC-40 in France was 0.6 percent higher at 3,299. The FTSE 100 index of leading British shares was up 0.9 percent at 5,677.

U.S. stocks were also underperforming their European counterparts ? the Dow Jones industrial average was flat at 13,076 while the broader S&P 500 index fell 0.1 percent to 1,385.

Most of the attention Monday will continue to center on Europe, with U.S. Treasury Secretary Timothy Geithner meeting Draghi and Germany's finance minister to discuss the challenges facing Europe and the global economy.

Making sure that Spain and Italy can continue tapping financial markets for cash appears to be the priority of policymakers despite a warning from Germany's central bank, the Bundesbank, that the line between monetary and fiscal policy should not be blurred.

Both Spain and Italy have seen their borrowing rates in bond markets ease since Draghi's comments.

The yield on Spain's 10-year bonds in the markets has dropped significantly below the dangerous 7 percent level to around 6.60 percent, while Italy was able to raise a bigger than expected ?5.5 billion ($6.77 billion) in a round of auctions Monday. Crucially, the yield on the 10-year bond fell to 5.96 percent from 6.19 percent the last time it was offered, a signal of improving investor appetite.

The spotlight this week won't just be on Europe: Fed policymakers are also meeting this week and there are growing expectations that in light of waning economic growth, they may announce a new monetary stimulus. The Bank of England also holds its monthly rate-setting meeting.

"With the rally we have had, the potential is for the central bankers to disappoint," said Louise Cooper, markets analyst at BGC Partners. "This Draghi-inspired rally may peter out if the central bankers fail to deliver."

The euro was down 0.5 percent to $1.2252 after figures from the European Union showed economic confidence in the eurozone fell to a 34-month low in July. News that the Spanish economy contracted a further 0.4 percent in the second quarter of the year, its third straight quarterly decline, also weighed it down.

Earlier in Asia, Japan's Nikkei 225 stock average closed up 0.8 percent at 8,635.44 and Hong Kong's Hang Seng jumped 1.6 percent to 19,585.40. Australia's S&P/ASX 200 climbed 0.9 percent to 4,245.70 and South Korea's Kospi rose 0.8 percent to 1,843.79. China's Shanghai Composite fell 0.9 percent to 2,109.91.

In energy trading, benchmark crude for September delivery was down 30 cents at $89.83 a barrel in electronic trading on the New York Mercantile Exchange.

Source: http://news.yahoo.com/markets-stay-supported-ecb-hopes-095246618--finance.html

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