Spain soothes debt worries...stocks, euro extend gains

Global markets managed to sustain last week's strength as the euro climbed after a reasonably successful Spanish bond auction eased some trepidation about the financial health of the southern European nations. Also boosting the confidence about the region's ability to tide over the sovereign debt crisis were tough new austerity measures announced by the likes of Spain and France. Worries about sovereign debt in Europe also retreated after European Council President Herman Van Rompuy said that stress tests on the region's banks will be published in July. That announcement helped assuage fears over European banks' loan books and their exposure to euro-zone sovereign debt as it came amid stiff opposition, particularly from regional banks in Germany. Earlier, the yield on ten-year Spanish government bonds rose amid speculation of a Greek-style bail-out for Spain and more worries about the financial health of the country’s banks. But those reports were dismissed by both the IMF as well as the Spanish government.



The Stoxx Europe 600 index gained 6.2% over seven days to reach its highest closing level since May 13 on Thursday. It was all set to stretch its winning run to eight sessions on Friday. The euro held at three-week highs, on track for its second straight week of gains. It was near US$1.24 on Friday as investors shed short positions after solid demand at the Spanish government bond auction. The shared European currency has gained more than 2% so far this week, pulling further away from a four-year low of US$1.1876 struck on June 7. Gold futures were trading at US$1,244.80 an ounce after closing at an all-time high of US$1,248.70 in New York on Thursday. Light sweet crude oil futures were trading at US$76.18 a barrel.

US and European shares regain all their losses for the year as the worst fears about euro zone sovereign debt have eased. The dollar declined against a basket of currencies and the euro. MSCI's all-country world index is up around 7% since its June 7 close and more than 3% this week. The MSCI Asia Pacific Index climbed 3.3% this week, on course for its biggest weekly increase since the period ended Dec. 4. It has now risen for seven consecutive days, its longest winning streak since July. Japan's Nikkei ended flat but had its biggest weekly rise in three months. Fund tracker EPFR Global reported that more than US$37bn flowed out of money market funds during the latest week and into high-yield and emerging market bond funds and global equity funds. Emerging market equity finds saw the most net inflows in 10 weeks