October 28, 2011 / 1:59 AM / 6 years ago

Global stocks at 3-month highs, euro underperforms

LONDON (Reuters) - Global stocks advanced and headed for their best week in over two years Friday, bolstered by EU leaders’ efforts to contain the euro zone debt crisis which have stoked appetite for riskier assets, although the euro lagged the rally.

<p>A trader reacts at his desk at the Frankfurt stock exchange October 27, 2011. REUTERS/Alex Domanski</p>

The single currency came under slight pressure after yields at the sale of 10-year Italian bonds hit a euro-era high above 6 percent. Despite higher yields, demand was lower than previous auctions, underlining how cautious investors are on peripheral debt despite the EU rescue deal and pledges by Italy to reform.

With investors for the time being shrugging off the lack of detail in Thursday’s anti-crisis measures in Europe, the region’s shares extended the previous session’s sharp rally.

The FTSEurofirst 300 .FTEU3 index of leading European shares was up 0.15 percent at 1,021.63 points in early trade. The index is up 11 percent this month and is on track for its biggest monthly rise since April 2009.

Solid third-quarter sales from French car maker Renault (RENA.PA) also lifted the broader index. Banking shares .SX7P, which have been battered by contagion fears from a possible Greek default, advanced 1.8 percent, extending their 8.9 percent surge Thursday.

World stocks as measured by the MSCI index rose 0.4 percent to 319.09 -- having hit the highest level in nearly three months of 319.78 earlier in the day.

U.S. stock index futures pointed to some signs that the stock market euphoria was flagging. Futures for the S&P 500, the Dow Jones and the Nasdaq 100 were all down 0.4 to 0.5 percent.

Fredrik Nerbrand, global head of asset allocation at HSBC, said the lack of details out of the European summit was causing some discomfort to investors.

“I find it curious and if anything rather worrying that Italian bond yields are up to the level as they were before the summit, while the equity markets are completely decoupled from that,” he said.

Euro zone leaders are now under pressure to finalize details of their plan to slash Greece’s debt and strengthen the European Financial Stability Fund (EFSF), possibly through investment by emerging economies like China and Brazil.

The head of the fund, Klaus Regling, said Friday he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing.


Investors’ focus is also shifting to a Group of 20 meeting next week in Cannes, southern France.

Edmund Shing, equity strategist at Barclays Capital, said stocks were likely to recover further next week ahead of the G20 summit on November 3 and 4 as investors would not want to bet against policymakers for now. But he advised investors not to chase the market too aggressively.

The euro slipped to $1.4170, taking a breather from a rally Thursday which sent it to a seven-week high of $1.4248. It fell to near session lows of around $1.4158 after the Italian bond auction results.

“Although we’re getting somewhere with EFSF, the Italian auction shows the market is sending signals that the crisis hasn’t been solved by a long shot,” said Stephen Gallo, head of market analysis at Schneider FX.

The dollar index .DXY was up 0.15 percent after falling some 1.6 percent, its biggest one-day fall since May 2009.

Analysts said with stocks looking to advance further, the sell-off in the dollar is expected to continue.

Brent crude slipped to around $111.09, but prices were on track to post a weekly gain.

Spot gold retreated from a one-month high of $1,751.99 at $1,736.69 an ounce, down 0.4 percent from the previous close. But it was still on course for a gain of around 6 percent from a week earlier, the biggest one-week rise in two months, according to Reuters graphics.

Editing by Stephen Nisbet

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