NEW YORK: The euro and such risk assets as stocks and crude oil rose on Thursday after an Italian debt auction went better than expected and signs of new governments in Italy and Greece eased fears of a euro zone break-up.
Italy moved closer to a national unity government, with outgoing Prime Minister Silvio Berlusconi reversing a call for early elections, while ex-European Central Bank vice-president Lucas Papademos will head a new Greek coalition.
Italy paid its highest yield in 14 years to sell 12-month debt and while there was relief the sale went smoothly, worries festered that Italy's borrowing costs were unsustainable.
The euro rose against the US dollar, pulling away from a one-month low and Brent oil prices climbed above $113 a barrel as a weak dollar and an unexpected drop in US oil stocks outweighed concerns about the euro zone debt crisis.
The euro was up 0.6 percent at $1.3626.
US economic data on jobs and the trade balance was viewed as favorable, but markets remained focused on Europe.
"Data will take a back seat to developments in Europe," Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington.
A rise in Italian yields will unsettle investors, as they did on Thursday when a rise about 7 percent sparked a sell-off.
"We've seen a relative calm in Italian bond markets today but a rise back above 7 percent on the 10-year will see the euro continue to fall," Esiner said.
Stocks on Wall Street opened higher, following gains in European stock markets.
The FTSEurofirst 300 index of leading European shares rose 0.5 percent to 971.14 points.
The Dow Jones industrial average was up 138.12 points, or 1.17 percent, at 11,919.06. The Standard & Poor's 500 Index was up 15.67 points, or 1.27 percent, at 1,244.77. The Nasdaq Composite Index was up 25.28 points, or 0.96 percent, at 2,646.93.
US Treasury debt prices extended losses in the wake of data on weekly jobless claims and September international trade that was generally viewed as favorable.
Signs that the political deadlock in Italy may be easing also pushed bond prices lower, although safe-haven assets were expected to stay underpinned by worries about the ability to pay the country's debt burden.
The benchmark 10-year US Treasury note was down 13/32 to yield 2.04 percent.
"The focus is what's happening in Europe, and how our numbers here (US data) could change in the future due to the slowdown in Europe," said Rick Meckler, president of investment firm LibertyView Capital Management in New York.
New US claims for unemployment benefits fell last week to their lowest since early April and the trade deficit unexpectedly shrank in September, pointing to a slight improvement in the economic outlook.
Brent crude rose 62 cents to $112.93 a barrel.
The US crude oil contract was up $1.56 at $97.30 a barrel.
Copyright Reuters, 2011
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