ECB comments spark global rally

ShareCast -ECB comments spark global rally

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Wed 01 Dec 2010

LONDON (SHARECAST) - Shares rallied sharply across the markets following signals from European Central Bank (ECB)President Jean-Claude Trichet last night that it would intervene to stabilise the eurozone debt situation. Trichet hinted the ECB may significantly expand its government bond purchases programme and added it is determined to resolve the escalating eurozone crisis. He said financial stability in the eurozone ‘could really be called into question’ fuelling speculation that the ECB will intervene. His comments tomorrow after the ECB announces its interest rate decision for this month will be closely watched for more hints. Banking and insurance stocks rallied on yesterday’s comments, recovering some of the recent losses driven by the sovereign debt crisis. Banks Lloyds and RBS were among the top risers in London. Societe Generale led the French banks higher, while Deutsche Bank responded to an upgrade to neutral from underweight by US broker JPMorgan Cazenove. Europe was even the centre of attention on Wall Street with the main indices posting strong gains. Sentiment was also helped by the head of the European Financial Stability Facility Klaus Regling saying that the €440bn (£370bn) fund set up to support the eurozone was sufficient. The euro rallied slightly against the US dollar following heavy falls yesterday. Yields on 10-year bonds issued by the so-called ‘PIGS’ such as Portugal and Ireland fell back as hopes that the crisis will be resolved calmed investors’ nerves. Portugal, seen by many as next in line for a bail-out, successfully sold more than €500m in one-year bonds, though yields were higher than those in the previous auction, indicating that investors now view the Iberian country as a riskier proposition. Portugal’s treasury Secretary Carlos Pina attributed the higher yields to speculative pressures. ‘The big lesson we can learn from this is that the European solution mechanisms for the crisis are not being effective,’ he was quoted as saying by Reuters. ‘They again demonstrated this week a contrary, penalizing impact on Portuguese, Spanish, Italian and Belgian debt.’ Some of the pressure on Portugal to accept a bail-out has come from Spain, where some think a bail-out of its neighbour would prevent contagion. Rating agency Standard & Poors put its rating on Portugal under review today and will decide whether to downgrade its stance on the country in the next three months.