Stocks gain on Portugal debt sale

Portugal raised $1.62bn dollars in the bond sale, raising hopes it may not need to be bailed out by the EU

Global stocks and the euro currency have rallied after healthy demand for Portugal’s debt sale eased concern over Europe’s lingering debt crisis and boosted sentiment among investors.

European stocks hit a 28-month closing high on Wednesday, lifted by speculation the European Union will bolster the region’s rescue fund, and government bond prices dropped after the Portuguese bond auction reduced the safe-haven appeal of debt and gold.

Portugal raised €1.249bn [$1.62bn] in the bond sale with strong demand from investors who bought the bonds at 6.7 percent interest, below the critical level of seven per cent.

This figure is important because when Greece breached the seven per cent interest rate last April, it was just 17 days before it needed a bailout and after Ireland’s bonds reached seven per cent interest, it lasted about 30 days before needing its own rescue package in November.

Fernando Teixeira dos Santos, Portugal’s finance minister, told the Reuters news agency would help Lisbon resist a bailout, amid widespread speculation in recent days that it was being pushed towards accepting financial aid.

“We consider today’s bond auction a success,” he said. “We see no reason to abandon the strategy of raising financing in markets and diversifying our investor base.”

However, Matthew Lynn, a financial commentator based in London, told Al Jazeera that despite the successful bond sale, he does not think Portugal will manage to avoid a bailout.

“Portugal managed to get away with the bond auction today, but they [bond auctions] are slightly artificial. They get set up in the market as a big hurdle but it’s known in advance that they’re going to get the bonds away, otherwise they wouldn’t try and sell them,” he said.

“I wouldn’t put too much weight on this [sale]. The fact is there is lots of noise behind the scenes – Germany and France are trying to push Portugal to accept a bailout  … because they are trying to draw a line under this crisis.”

‘Encouraging news’

The euro extended gains versus the US dollar on Wednesday, with traders citing options-related demand pulling it toward a session high of $1.3113.

That gain put the euro above its 200-day moving average, which Reuters news agency data put at $1.3070, a level that would be a first step toward improved euro sentiment, traders said.

World stocks as measured by MSCI’s all-country world index advanced 1.4 per cent, while it’s emerging markets index gained 1.7 per cent.

In Europe, the FTSEurofirst 300 index of top European shares finished 1.5 percent higher at 1,163.94 points, the highest close since September 2008, with Spanish banks leading a relief rally.

“Encouraging news that the EU Commission could use the region’s rescue fund to back sovereign debt issues is helping bring down risk premiums and this is directly benefiting the banks,” Oscar Moreno, fund manager at Renta4 in Madrid, said.

US stocks also gained, helped by signs of strength in the US banking sector, but Europe played a key role.

Wells Fargo raised the US bank sector to an “overweight” rating and JPMorgan Chase & Co Chief Executive Jamie Dimon said his bank could pay an annual dividend of 75 cents to $1 once the Federal Reserve completes and approves stress tests of the largest US banks.

On Wall Street, the Dow Jones industrial average was up 107.85 points, or 0.92 percent, at 11,779.73. The Standard & Poor’s 500 Index was up 12.14 points, or 0.95 percent, at 1,286.62. The Nasdaq Composite Index was up 18.00 points, or 0.66 per cent, at 2,734.83.