European sell-off pauses, Spanish risks ease

Thu Dec 15, 2011 7:37am EST
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By Richard Hubbard

LONDON (Reuters) - The sell-off in European stocks and the single currency paused for breath on Thursday as a good Spanish debt auction eased market nerves over the euro zone debt crisis and the bleak global economic outlook.

Data showing euro zone annual inflation steady at 3 percent for November also suggested the European Central Bank had ample room for another rate cut.

"The imminent recession, plus sharply lower commodity price inflation, should push inflation below 2 percent in the course of next year," said Martin Van Vliet, economist at ING.

"The prospect of markedly slower inflation gives the European Central Bank room to ease monetary policy further."

The euro rose about 0.2 percent at around $1.30 after having fallen to as low as $1.2945 on Wednesday, its lowest level since January 11. The next major support for the currency will come at $1.2860, which is its lowest price this year.

The safe-haven Swiss franc got a boost after the central bank kept its cap on the currency at 1.20 per euro, knocking back speculation it would move to weaken the currency further.

Meanwhile another traditional safety play, gold, saw its price recover from the hammering it has taken in recent days as fund managers liquidated their holdings to be virtually unchanged in London at $$1,590 an ounce.

Gold dropped by 3.5 percent on Wednesday to its lowest levels since September and has lost 9 percent of its value this month. Gold has increasingly become prone to pressure from the wider financial market, moving in tandem with other assets as investor sentiment remains fragile.   Continued...