ECB rescue fund talk lifts shares, euro
By Richard Hubbard
LONDON (Reuters) - The euro jumped and European shares turned higher on Wednesday after a European Central Bank policymaker said there were reasons to boost the firepower of the euro zone's new bailout fund to tackle the region's deepening debt crisis.
Governing Council member Ewald Nowotny said there were arguments for giving Europe's permanent rescue fund a banking license which would allow it to borrow unlimited ECB money, an idea that the central bank has rejected so far.
Investors have become increasingly worried that the firepower of the new fund would be hugely diminished if, as widely expected, Spain needs a full scale sovereign bailout on top of the rescue deal for its banks.
The euro jumped 0.5 percent to $1.2128 on the comments although its outlook remains weak with the single currency not far from a two-year low of $1.2042.
"The market is desperate and jumping on anything that even looks remotely positive. The squeeze higher will fade now and we'll probably print a fresh negative later on today," said Geoff Kendrick, currency strategist at Nomura.
Weak economic data from Germany and the UK reinforced that expectation as it showed the European Union's biggest economies are being dragged into the mire of the debt crisis.
German business sentiment dropped in July for the third straight month to its lowest level since March 2010, according to the latest survey by the Munich-based Ifo think tank.
The monthly survey of some 7,000 companies, produced an Ifo index reading of 103.3 for this month from a revised 105.2 in June. Continued...