Spain Bailout Helps Stock Market

BANGKOK – World stock markets rose sharply Monday and the euro got a boost after Spain sought a lifeline for its ailing banks, easing fears that Europe’s debt crisis was about to spin out of control.

Spain on Saturday asked finance ministers from the 17 countries that use the euro to rescue its banks, which have been crushed by bad real estate loans. They responded by offering up to €100 billion ($125 billion) in credit that the Spanish government could funnel to banks.

Spain has not said how much of the money it will tap, but the development was enough to push European stock markets higher in early trading. Britain’s FTSE 100 rose 1.3 per cent to 5,505.53. Germany’s DAX gained 2 per cent to 6,255.83 and France’s CAC-40 added 1.9 per cent to 3,109.07.

Wall Street also headed for a higher open, with Dow Jones industrial futures rising 0.9 per cent to 12,613 and S&P 500 futures 0.9 per cent higher at 1,334.30.

Asian stocks gained ground earlier in the day following better-than-expected data on the weekend that showed China’s exports jumped in May from a year earlier.

Japan’s Nikkei 225 index climbed 2 per cent to close at 8,624.90. South Korea’s Kospi added 1.7 per cent to 1,867.04 and Hong Kong’s Hang Seng added 2.4 per cent to 18,953.63. Benchmarks in Singapore, Taiwan, mainland China, Indonesia and New Zealand also rose.

In currency trading, the euro rose to $1.2607 from $1.2507 late Friday in New York. It rose to 100.29 yen from 99.50 yen.

The next key date for the euro currency union is Sunday, when Greek voters head to the polls in an election likely to determine whether the debt-mired country will stick with the common currency.

“Market sentiment has improved on the back of the announcement of Spanish bank aid and a less worrying set of numbers out of China over the weekend,” analysts at Credit Agricole CIB in Hong Kong said in a market commentary.

But the newfound sense of optimism in markets is likely to fade as the Greek election nears, they said.

The rescue plan aims to calm investors by taking bank losses out of the equation. But Tom Kaan of Louis Capital Markets in Hong Kong said he believes the rally will soon fade because Spain’s bank bailout doesn’t address other critical issues.

Take Italy, for example: government debt in the third-largest euro economy continues to pile up as its economic growth stagnates. Some fear it is only a matter of time before Italy becomes the next country to ask for rescue money.

“I think it’s only a brief respite for the markets,” Kaan said. “The 100 billion bailout is hopefully setting up a firewall against a much worse deterioration. Here we are, saving the banks. But what is next?”

Spain is the fourth euro nation to seek a rescue, after Greece, Portugal and Ireland. A financial crisis has gripped Spain since 2008, when a real estate bust caused big losses for many banks.

Among individual stocks, Japanese electronics maker Sharp Corp. soared 8.2 per cent after the company announced it will co-operate with Taiwan’s Hon Hai Precision Industry Co. in the smartphone business in China, news reports said. Hon Hai rose 2.6 per cent.

Recovering crude prices helped oil-related stocks. South Korean oil refiner S-Oil Corp. rose 4.1 per cent. Hong Kong-listed China National Offshore Oil Corp., known as CNOOC, rose 3.7 per cent.

The positive Chinese trade data helped its shipping sector post solid gains.

Hong Kong-listed China COSCO Holdings Co. Ltd. shot up 11.3 per cent and China Shipping Container Lines Co. jumped 10.9 per cent.

Benchmark oil for July delivery was up $1.23 to $85.33 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 72 cents to end at $84.10 per barrel on the Nymex on Friday.

© The Canadian Press, 2012

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