Ifo cheer fades as euro zone debt fears resurface

Mon Mar 26, 2012 8:14am EDT
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By Catherine Evans

LONDON (Reuters) - Spain's and Italy's stock markets fell on Monday as fears they will struggle to enact reforms needed for growth returned, but a report that Germany may agree to combine the euro zone's two bailout funds temporarily lifted the two countries' bonds.

European shares were higher overall following a strong German economic survey, while U.S. stock futures pointed to a higher opening on Wall St. The FTSEurofirst 300 index .FTEU3 was up 0.4 percent at 1,085, recovering after early declines, while the German DAX .GDAXI gained 0.65 percent after the survey's release.

The Ifo index showed German business morale rose in March to 109.8 from last month's 109.6, bettering the consensus forecast for no change and confounding some expectations of a weaker figure after disappointing economic surveys last week.

Although the euro zone debt crisis has eased, fears that Italy and Spain may struggle to cut their debt burdens and revive growth have resurfaced. Both countries are seen as being too big for the euro zone to bail out.

The Ifo has now risen for five consecutive months, showing Europe's largest economy continues to outpace other euro zone states.

Jennifer McKeown at Capital Economics said the survey showed the German economy remains resilient.

"Note, though, that this month's rise was the smallest in the past five months, suggesting that maybe the run of optimism regarding the German economy is coming to an end... While exports are faring relatively well, cautious German consumers are still not really spending despite the resilience of the labor market," McKeown said.

"In all, while Germany will continue to outperform other countries in the euro zone, any recovery will not be strong enough to pull them out of recession. We suspect that the economy will do little more than stagnate this year."   Continued...

A man smiles as he talks on a mobile phone in front of an electronic monitor displaying share prices outside a brokerage in Tokyo March 14, 2012. REUTERS/Yuriko Nakao