Spain bailout? Market worries eased by ECB comments.
Spain bailout concerns have rattled markets in recent days. But stock markets rose after the European Central Bank hinted that it could intervene to lower the nation's borrowing costs, reducing the potential for a full-blown Spain bailout.
LONDON — European stocks recovered Thursday as hopes for central bank action to ease the financial crisis tempered worries that the economic downturn is hurting corporate earnings.
Markets have been rattled over the past few days by fears that Spain, the fourth-largest economy among the 17 states that use the euro, could need a bailout along the lines of Greece, Ireland and Portugal.
Markets recovered somewhat on Thursday on reports that European Central Bank President Mario Draghi told a conference of investors in London the bank could intervene in markets to bring down the government borrowing rates.
After trading lower, Germany's DAX was up 0.1 percent at 6,410.25 while France's CAC 40 was 1 percent higher at 3,112.45. Britain's FTSE rose 0.5 percent to 5,523.28. The euro rallied to trade 0.5 percent higher at $1.2214.
Borrowing rates for Spain and Italy fell following the ECB President's remarks. The yield on Italy's 10-year bond dropped to 6.35 percent. Madrid's main interest rate, however, remains unsustainably high at 7.21 percent.
Marc Ostwald, an analyst at Monument Securities, welcomed Draghi's comments that high borrowing rates could hurt the bank's efforts to control inflation. Market-watchers took that as a signal that the ECB could be more willing to intervene in markets to lower those borrowing rates — which the bank has in recent months said is not part of its mandate.
"They hint at a possible attempt to circumvent the restrictions on outright government bond purchases," said Ostwald.
Market sentiment had also been given a boost already on Wednesday, when ECB policymaker Ewald Nowotny suggested that Europe's bailout fund could be given a banking license. That would give it the ability to borrow money from the ECB. Such a move would be of particular significant for Spain and Italy as the current bailoutfund does not have enough money to rescue them both.
Draghi's comments helped offset mostly gloomy news from corporate earnings. Major companies like engineering group Siemens and carmaker Volkswagen warned that the economic slowdown in Europe would hurt profits in coming quarters. That hurt stocks in the industrial and automotive sectors.
Siemens shares were down almost 4 percent while Volkswagen fell 2.3 percent. Telecommunications maker Alcatel-Lucent suffered an 8.6 percent drop. Oil company Shell, which reported lower profits, saw its shares fall 3.1 percent.
Consumer goods maker Unilever was a bright spot, gaining 4.7 percent after reporting a strong rise in profits. But its improvement in business was due to growth outside of Europe, where sales in fact fell.
Earlier in Asia, indexes mostly rose, though gains were kept in check by more evidence of the toll that Europe's prolonged debt crisis is taking on the region. South Korea, Asia's fourth-largest economy, said economic growth slowed to a two-year low in the second quarter as weakness in Europe crimped demand from South Korea's biggest market China.
Japan's Nikkei 225 stock average climbed 0.9 percent to 8,443.10 and Hong Kong's Hang Seng added 0.1 percent to 18,892.79. South Korea's Kospi gained 0.7 percent to 1,782.47. Australia's benchmark rose 0.6 percent to 4,147.70 while the Shanghai Composite shed 0.4 percent to 2,126.
In energy trading, benchmark crude for September delivery was down 12 cents at $88.85 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 47 cents on Wednesday in New York to end at $88.97.