Euro, European shares higher as debt worries ease

Tue Feb 14, 2012 7:32am EST
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By Richard Hubbard

LONDON (Reuters) - The euro rose to a session high and shares reversed early losses after key German data bolstered hopes that Europe's largest economy was recovering and a strong Italian bond sale added to signs that financing pressures were being contained.

Those factors revived sentiment after a raft of euro zone credit downgrades and warnings on the AAA ratings of France, Britain and Austria from Moody's, which hit European markets early on.

U.S. stock index futures pointed to Wall Street extending Monday's gains with U.S. retail sales data for January expected to support the growing confidence that growth in the world's top economy was improving.

Germany's ZEW Indicator of Economic Sentiment suggested the recovery, which slowed at the end of last year, is back on track there and that analysts are less fearful now about the impact of the euro zone's debt crisis on the growth outlook.

"The economic weakness at the turn of the year is starting to look more and more like it was just a mere dent," said Rainer Sartoris, an analyst at HSBC Trinkaus. "The economy is stabilizing."

Italy sold 6 billion euros ($7.9 billion) of new bonds due in November 2014. Yield fell to their lowest level since March 2011, adding to impressions that the risk aversion prompted by the Moody's downgrade announced late Monday was overdone.

"All in all, a good auction for Italy," Annalisa Piazza, market economist at Newedge Strategy in London, said.

"This is a sign that the government's efforts to make significant changes in the Italian economy are actually 'buying' confidence amongst investors."   Continued...

<p>Traders talk in front of a screen showing an index at Madrid's Bourse February 14, 2012. REUTERS/Sergio Perez</p>