European stocks rebound on positive Italy bond auctions

European stock markets rebounded Wednesday on better-than-expected bond auctions in Italy, a day after stocks slumped on inconclusive elections in the debt-laden eurozone country.

Milan's benchmark FTSE MIB index of top companies jumped 1.77 percent to close at 15,827 points, having tumbled 4.89 percent on Tuesday as Italy's national election failed to produce a clear winner.

Elsewhere Wednesday, London's benchmark FTSE 100 index added 0.88 percent to 6,325.88 points, as data confirmed that the British economy shrank 0.3 percent in the fourth quarter of last year.

Frankfurt's DAX 30 rose 1.04 percent to 7,675.83 points and the Paris CAC 40 gained 1.92 percent to 3,691.49 points, as dealers took their cues also from rising German consumer confidence and overnight gains on Wall Street.

"Europes markets have managed to stay fairly well supported today as investors continue to digest the results of this weeks inconclusive Italian election," said market analyst Michael Hewson at CMC Markets.

"Downside has been somewhat limited in light of Fed Chairman Bernankes soothing comments about QE last night, while a fairly well received Italian bond auction has also helped," he added.

Rome on Wednesday conducted a succesful auction of long-term debt that raised 6.5 billion euros ($8.5 billion).

But Italian government borrowing costs soared to their highest levels since October, Dow Jones Newswires reported, as post-election political deadlock increased the riskiness of the eurozone nation's debt.

Italy sold 2.5 billion euros of its four-year bond at a yield of 3.59 percent and a further 4.0 billion euros of a new ten-year bond at 4.83 percent.

Funding costs were the highest for both maturities since bond auctions in October, but the 10-year bond yield held below the 5.0-percent level which had been feared by markets.

The 4.83 percent yield was also marginally lower than the yield on existing 10-year bonds traded on the secondary market on Tuesday.

The yield continued to fall in Wednesday trade to 4.802 percent at 1700 GMT.

The yield on Spanish 10-year bonds, which had also spiked on Tuesday, fell to 5.247 percent on Wednesday from 5.365 percent.

In foreign exchange deals, the euro firmed to $1.3101 from $1.3061 late in New York on Tuesday, when it had plunged to a seven-week low at $1.3018. That was a level last seen on January 7.

The price of gold -- an asset investors often flee to during risk-averse periods -- rose to $1,604.25 from $1.5159 late on Tuesday.

-- Draghi may need to 'put the money where his mouth is' --

Investors remained hesitant after Italy's election left no party in overall control, raising concerns that uncertainty in Rome could see the eurozone return to the dark days of the region's long-running debt crisis.

"Talk about bad timing -- a bond auction two days after the close of the polls of one of the most uncertain elections in Italy's history," noted Kathleen Brooks, research director at trading site Forex.com.

"The government managed to sell the full allocation of bonds it had targeted, however the yield Rome had to pay was higher."

She added: "It makes sense from an investors' point of view: of course you should demand extra yield if the country does not even have a government."

Italian leftist leader Pier Luigi Bersani faces weeks of tough talks after admitting he had "come first but not won" key elections.

Final results showed that while Bersani's centre-left coalition had clinched the lower house, no party had taken the upper house.

A new anti-establishment party that has called for a referendum on the euro said Wednesday it would not support Bersani's coalition, putting off the prospect of a new government any time soon.

Gekko Markets trader Anita Paluch said the possibility of a prolonged period of instability in the world's third-largest debt market and where the top banks are considered to big to let fail has investors nervous and heading to the exit.

"And it makes Draghi to put the money where his mouth is, when he says whatever it takes" she added.

ECB chief Mario Draghi has repeatedly said the central bank will do whatever it takes to ensure the survival of the euro and the announcement last year of an as-yet untested programme of unlimited bond purchases is widely credited of calming market anxiety.

Asian markets mostly rose on Wednesday after US Federal Reserve head Ben Bernanke reaffirmed the central bank's huge monetary easing scheme, but a stronger yen sent Tokyo down 1.27 percent.

Sydney climbed 0.66 percent, Seoul rose 0.20 percent, Shanghai added 0.87 percent, while Hong Kong finished 0.25 percent higher.

US stocks moved higher Wednesday after encouraging durable goods and housing data and upbeat earnings reports.

The Dow Jones Industrial Average rose 0.70 percent to 13,996.93 points in afternoon trading.

The broad-based S&P 500 climbed 0.87 percent to 1,510.00, while the tech-rich Nasdaq Composite Index added 0.96 percent to 3,159.85.

Durable goods orders rose by 1.9 percent in January, excluding volatile transportation orders, almost double the increase in December.

Stocks also found support from pending home sales, which rebounded in January to a 2010 high, providing fresh evidence of the recovery under way in the distressed housing market.

burs-rl/jmm

--

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