Euro hits 6-week low on ECB loan repayment, Italian elections

Fri Feb 22, 2013 5:32pm EST
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By Angela Moon

NEW YORK (Reuters) - Global equity markets rebounded on Friday, recovering some of the previous session's sharp losses, but the euro hit a six-week low against the dollar on renewed doubts about the health of the euro zone's financial system.

Wall Street ended higher, boosted by Dow component Hewlett-Packard (HPQ.N: Quote), whose shares surged on strong results, and as comments from Federal Reserve officials allayed fears that the U.S. central bank would curtail its stimulus measures.

But for the week, the S&P 500 posted its first weekly decline for the year. Risk-associated assets have been rattled this week by suggestions the Fed could scale back its monetary support sooner than expected and by weak euro zone data that dashed hopes of an early recovery in the recession-hit region.

In a sign that some euro zone banks may still need support, the ECB said just over 61 billion euros ($81 billion) of the 530 billion it lent at the height of the bloc's crisis last year will be repaid when banks get the first opportunity next week.

That was well below the 130 billion euros expected by traders and means there remains more than enough cash in the banking system to keep downward pressure on money market rates. The news sent the euro to a six-week low against the dollar.

"The smaller-than-expected payback of loans means the ECB's balance sheet will shrink at a slower-than-expected pace," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. It "further undermined confidence in the state of recovery in the 17-member bloc."

Stocks fared better in Europe as investors looked to take advantage of the previous session's sharp sell-off, though traders cited some caution given the elections in Italy.

The FTSEurofirst 300 .FTEU3 closed up 1.2 percent at 1,165.43, having sunk 1.5 percent on Thursday.   Continued...

Specialist trader Paul Cosentino (L) gives a price just before the opening bell on the floor of the New York Stock Exchange February 21, 2013. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS)