Growing optimism over eurozone deal gives a boost to world stocks

Reuters and AFP

LONDON/HONG KONG–World stocks rose on Monday and troubled eurozone bonds recovered as confidence grew that European leaders would make big strides in solving the eurozone’s debt crisis at a crucial summit this week. Sentiment was lifted by Italy’s unveiling of austerity steps, and expectations Ireland will do the same in a new budget to be announced later in the day.

The mood drove Italian bond yields further below the worrying 7 percent level at which they are seen as unsustainable. The poor state of the eurozone’s economy, however, was underlined by business surveys suggesting there will be a steep economic contraction in the current quarter. Despite this, retail sales data for October were better than expected. European stocks were higher with the FTSEurofirst 300 gaining three quarters of a percent, building on last week’s biggest weekly gain since late 2008. They were particularly lifted by banking stocks, which have recovered around 23 percent in 10 days. The week ahead features a series of high profile meeting among European leaders seen as crucial to the future of the 17-nation eurozone. On Monday, French President Nicolas Sarkozy and German Chancellor Angela Merkel meet to outline joint proposals for more coercive budget discipline in the eurozone, which they want all 27 EU leaders to approve at Friday’s summit. The focus at the summit will be squarely on new rules to tighten fiscal integration. An agreement could pave the way for an accelerated implementation of the eurozone’s rescue scheme to help ensure debt-ridden countries have a vehicle to tap for funds while encouraging bondholders to buy eurozone bonds. On Tuesday, U.S. Treasury Secretary Timothy Geithner kicks off a visit to the region in Germany, where he will meet European Central Bank (ECB) President Mario Draghi and government officials. Italy, one of the most severely debt-stricken eurozone countries which has faced soaring borrowing costs, unveiled a 30-billion-euro (US$40.3 billion) package of austerity measures on Sunday, raising taxes and increasing the pension age. World stocks as measured by MSCI were up a third of a percent. In early European trade most main markets were higher. London’s FTSE 100 climbed 0.56 percent, Frankfurt’s DAX 30 gained 0.93 percent and in Paris the CAC 40 added 1.32 percent, while the Milan exchange jumped 2.02 percent.