Stocks rise from 2-month low; euro firmer

LONDON: World stocks rose from a two-month low on Thursday while the euro hit a one-week peak versus the dollar, helped by a report on China's possible interest in "bailout" bonds for Portugal.

Asian stocks rose 1.7 percent and Wall Street was set for a firmer open after ending a three-day losing streak on Wednesday. This encouraged investors to buy the euro and risky assets, although uncertainty over whether Greece would need to restructure its debt capped gains.

"(The China story) fitted into better risk sentiment at that moment," said Niels Christensen, currency strategist at Nordea in Copenhagen.

"This euro rally is very fragile and the euro is vulnerable to what is going on in the euro zone."

The Financial Times quoted the head of the European Financial Stability Facility (EFSF) as saying China and other Asian investors were expected to buy a "strong proportion" of Portuguese bailout bonds when the euro zone's rescue fund starts auctioning them next month.

However, investors remain concerned about the possibility of Greek debt restructuring, uncertainty over whether Greece will agree new austerity measures and the potential for contagion into the likes of Spain and Italy.

"There are ongoing concerns about euro zone peripheral debt. We're not out of the woods by any stretch of the imagination," said Jeremy Batstone-Carr, strategist at Charles Stanley. MSCI world equity index rose 0.5 percent, bringing its gains this year to three percent. The FTSEurofirst 300 index added 0.5 percent, led by banks and mining shares. US stock futures were up around 0.2 percent.

Emerging stocks gained 1.2 percent.

The dollar fell half a percent against a basket of major currencies. The euro rose 0.7 percent to $1.4181.

US crude oil fell 0.3 percent to $101.01 a barrel, erasing earlier gains.

But losses were limited on strong underlying demand for commodities. Reflecting that, the Baltic Dry Index, which tracks rates to ship dry commodities, rose to its highest level in seven weeks on Wednesday.

GREEK YIELDS RISE

The Greek government is scrambling to resolve a stand-off with its opposition over austerity measures and Greece's EU commissioner warned on Wednesday that its euro membership was at risk if it failed to agree to sacrifices.

Greek two-year yields rose 43 basis points to 26.9 percent but the premium investors demand to hold Spanish and Italian government bonds rather than benchmark German Bunds fell after the FT report on China.

The EFSF will hold its first auction to raise funds for the recently-approved 78 billion euro Portuguese bailout in mid-June.

"We know central banks are buying a lot of this kind of paper, it's just a bit of positive news amongst all the noise on Greece," said a trader.

"But there seems to be growing political dissent on further bailouts so it's really down to Greece to get their house in order."

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Copyright Reuters, 2011