London Stock Exchange
World shares traded at their highs for the week on Thursday and the euro rose on signs policymakers in Europe were taking urgent action to help stem Spain's banking crisis and that the United States might embark on monetary stimulus.
The positive mood helped lift demand at the latest auction of Spanish debt, extended the week's gains in the FTSE Eurofirst 300 .FTEU3 index of top European shares to over 2.5 percent, and kept Brent crude oil trading just above $100 a barrel.
According to Reuters the improved appetite for riskier assets has been linked to signs from the U.S. Federal Reserve that it could be ready to take action to tackle slowing growth, and reports German and EU officials are closer to a plan to deal with Europe's crisis.
"Since (last week's) weak U.S. job data, there's been rising speculation of more stimulus from the Fed," said Katsunori Kitakura, associate general manager of the market-making unit at Sumitomo Mitsui Trust Bank.
The case for action by the Fed was laid out by the central bank's second most senior official, Janet Yellen, in a speech on Wednesday that highlighted the risks to the economic recovery from ongoing housing problems, a weak job market and worsening financial conditions.
In the wake of her comments the MSCI's world equity index .MIWD00000PUS has risen about 0.5 percent, extending its gains to nearly 3 percent this week and putting it on track for its best weekly performance since late January.
The euro rose to $1.2586, its highest since May 28, and up marginally on the day, and about 2.3 percent above a two-year low of $1.2288 hit last week.
The focus now shifts to what Fed Chairman Ben Bernanke's will say in testimony to a congressional committee later on Thursday.
Sentiment was also supported by reports indicating that Germany was working more urgently with EU officials to tackle Spain's banking crisis and maybe softening its opposition to other moves to share responsibility for the region's mounting debt.
German Chancellor Angela Merkel tried to play down expectations that a master plan for the future of Europe would emerge at a leaders summit scheduled for the end of the month but said it would come up with an agenda to integrate further.
"Details of the plan remain unknown. But the Chancellor said she is in favor of a two-speed Europe, namely, not forcing, but giving everybody the option to participate," said Evelyn Herrmann, European Economist at BNP Paribas.
The better tone in the markets allowed Spain to sell 2.1 billion euros of fresh debt on Thursday, just days after the country's Treasury minister warned that access to the credit markets was under threat.
The average yield for the 10-year bond at the auction rose to 6.044 percent from 5.743 percent when the bond was last sold on April 19, but the value of the bids was 3.3 times the amount on offer, up from 2.4 times previously.
"It's a strong auction, no doubt helped by the relatively small size," said Peter Chatwell, rate strategist at Credit Agricole.
Yields initially fell 10 basis points on Spain's existing 10-year bonds after the auction to 6.2 percent.
However, analysts cautioned about reading too much into the outcome.
"There was a big move downward in Spanish yields going into the auction which seemed to have been driven by the hope that there is shortly to be joint action by several of the major central banks," Rabobank rate strategist Lyn Graham-Taylor said.
"In terms of the auction results, yields are still significantly above the levels seen when these bonds were last auctioned.
Markets have are now focusing on the Bank of England's regular policy setting meeting, with a rising number of economists forecasting that a slump in British manufacturing activity could see the central bank opt for more economic stimulus.