Italy compelled to pay record rates

EUROPE:Eurostoxx: 2,111.26 (+21.01) Frankfurt DAX: 5,492.87 (+64.76) Paris CAC: 2,856.97 (+34.72)

ITALY’S BORROWING costs again surged towards unsustainable levels yesterday, as yields on its debt approached recent highs.

This time around, however, equity markets held up, albeit in low trading volumes as the US markets opened just for half a day following Thanksgiving.

Italy paid a record 6.5 per cent to borrow money over six months and its longer-term funding costs soared far above levels seen as sustainable for public finances. The surge in Italian yields came despite the European Central Bank buying bonds in the secondary market.

The euro fell to its lowest in more than seven weeks against the dollar as the Italian auction stoked fears the euro zone crisis was deepening.

The euro fell to $1.3250, having dropped as low as $1.3210, its lowest since October 4th.

Across Europe equity markets were trending better. European stocks rose after falling in six previous sessions. The FTSEurofirst 300 index of top European shares was up by 0.9 per cent on the day but headed for a near-5 per cent loss on the week.

World stocks, indicated by the MSCI All-World index, were up 0.03 per cent on the day and down almost 5 per cent on the week.

In the UK, the FTSE 100 snapped its worst losing run since 2003, with miners and banks, sectors badly beaten in the previous few sessions, leading the rebound. The index rose by 37.08 points, or 0.7 per cent to 5,164.65, and stocks that had suffered from the market’s weakness this week featured prominently on the FTSE leader board.

Royal Bank of Scotland added 4.3 per cent, Admiral climbed by 3.1 per cent and Thomas Cook was up by 10.2 per cent, having fallen around 75 per cent on funding concerns earlier in the week.

“Today’s rally comes with a note of caution as volumes were particularly low and so there are doubts over its sustainability,” Angus Campbell, head of sales at Capital Spreads said.

In Dublin, the Iseq fell in early morning trading but rebounded once US markets opened. However, brokers were keen to downplay the significance of the bounce, pointing out that trading volumes were particularly thin.

Petroceltic jumped up by 13.3 per cent, with heavy trading in the stock in London. It added a cent to finish up at € 0.09. Elan was also up on the day, advancing by 22 cent, or 2.9 per cent to close on €7.55.

Glanbia was up by 4.5 per cent, or 20 cent, on very little volume. It closed up at € 4.65.

Bank of Ireland was also positive on the day, climbing by 2.6 per cent to close up at €0.078.

Ahead of its numbers on Monday, food group Aryzta was largely flat on the day, losing five cent, or 0.2 per cent, to end the week on €33.20.

DCC dipped by just nine cent, or 0.5 per cent, but this means that it has fallen back below the €17 level, at € 16.98. It has been trading down since its recent interim report, which warned of the impact the recent warm weather was having on its energy business.

United Drug was also down on the day, dropping two cent, or 1.1 per cent, to close down at €1.89, while leisure group Paddy Power gave up 62 cent, or 1.6 per cent to close down at € 39.11.

Kenmare Resources was weak on the day, giving up 2 cent, or 3.8 per cent to fall back to 0.38

In the US, markets rebounded from six days of losses, with Walmart doing well on the back of “Black Friday”, the traditional start of the US shopping season. As elsewhere, however, volumes were light, with markets closing at lunchtime following Thursday’s close. The day after Thanksgiving is typically one of the lightest trading volume days of the year.

“It’s hard to qualify today as even a trading session, considering there is hardly anybody here to trade,” said Kevin Kruzenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

“The market is oversold and there are some people hopeful of the shopping season and major retail stocks, but the overall sentiment is still weak. I wouldn’t be surprised if the SP tested the 1,150 level next week when traders get back to their desks.”

But for this week, the rebound looks to steer indexes away from ending with a second consecutive week of losses. The SP 500 had lost almost 4 per cent this week and given back almost two-thirds of its gains in October, the market’s best month in 20 years.

In Asia, stocks tumbled to their worst weekly performance for two months although Tokyo outperformed despite the Nikkei 225 Average slipping below this year’s March earthquake lows.

The FTSE Asia Pacific index retreated 4.6 per cent to 201.83, its fifth weekly decline out of the past six.

“Foreign investors have tended to steer clear of Japanese equities amid Europe-driven risk aversion because they know what happened to the Japanese economy in the global financial crisis,” said Naohiko Baba of Goldman Sachs. “However, with valuation metrics already back at post-Lehman lows, they do not seem to think the European crisis will drive Japanese equities much lower.”

Brent crude fell on ongoing concerns about Europe’s debt crisis. – (Additional reporting: Reuters/The Financial Times Limited 2011)