February 8, 2012 / 6:17 AM / 6 years ago

Euro, global shares up as Greek deal seen near

LONDON (Reuters) - The euro hit an eight-week high and shares rose on Wednesday on hopes that a second Greek bailout was close, shrugging off data showing the damage done by the crisis to the region’s economy and looking ahead to pro-growth moves from central banks.

U.S. stock index futures also point to a slightly higher open for equities on Wall St.

Greek leaders are due to meet later to agree a deal on painful austerity steps needed to secure a 130 billion euro ($172 billion) rescue from the IMF and European Union and avoid a potentially chaotic debt default.

“If we see a deal being signed it’s going to be euro positive, but that’s already priced in,” Morgan Stanley strategist Ian Stannard said.

The euro rose to $1.3289, its highest level since December 12, also briefly reaching 102.45 yen, its highest since December 22 against the Japanese currency.

“There has been a propensity by the market in general to look at the Greek scenario with a glass-half-full approach, irrespective of the deadlines Greece has missed,” said Jane Foley, senior currency analyst at Rabobank.

Euro zone officials say the full bailout package must be agreed with Greece and approved by the euro zone, European Central Bank and International Monetary Fund before February 15.


Investors appear keen to move on from Greece and focus on the improving outlook for global economic growth and signs from the world’s major central banks they will retain easier monetary policy stances, which should support riskier assets.

The European Central Bank’s provision of nearly half a trillion euros in low-rate long-term funds to banks in December was helping to prop up risk appetite with a second tender, expected to be similar in size, due at the end of the month.

The ECB and the Bank of England both hold policy meetings on Thursday, with the UK central bank expected to add an extra 50 billion pounds ($79.4 billion) of stimulus via bond purchases.

The MSCI All Country World Index (ACWI), which tracks shares in 45 countries, is close to posting gains of 10 percent for the year to date and was up 0.4 percent at 327.43.

The FTSEurofirst 300 index of top European shares .FTEU3 rise to fresh six month highs at 1,078.52, for a gain of over 7.5 percent so far this year.

The optimism in financial markets was not dented when Germany reported the steepest drop in exports for nearly three years in December and the Bank of France said its economy would not grow at all in the first quarter of 2012.

The German data suggested Europe’s dominant economy may have contracted more than thought in the fourth quarter of last year, but recent sentiment surveys suggest the dip will be brief.

“At the beginning of the year, the outlook for the German economy has improved, with the global economy picking up pace again and the uncertainty over the debt crisis easing,” Commerzbank economist Ulrike Rondorf said.

Debt markets also reflected the improved risk appetite, with safe-haven German Bunds coming under pressure although this didn’t affect Germany’s ability to sell 3.3 billion euros of fresh five-year government bonds.

The sale drew good demand despite the optimism over a Greek deal, drawing bids for 1.8 times the amount on offer.

The impact of the ECB’s efforts so far has been reflected in the yield on two-year Italian government bonds, which is now close to an eight-month low and has more than halved since late November.

“Even at the longer end, the yield on 10-year debt is now lower than on July 11, the day Italy was dragged into the euro zone crisis,” noted Nicholas Spiro, managing director of Spiro Sovereign Strategy.

Oil markets are still worried that the European debt crisis could hit global growth and crimp demand, but a sharp and unexpected drop in U.S. crude inventories kept prices firmer.

Front-month Brent crude futures rose to six month highs of $116.43 a barrel, marking its seventh straight day of gains, and U.S. March crude gained over a dollar to $99.43 a barrel.

The spot gold price briefly rose above $1,750 an ounce but edged back to around $1,745 as a Greek debt deal could take the shine of an asset traditionally seen as safe haven. ($1 = 0.6300 British pounds)

Additional reporting by Nia Williams; Editing by Catherine Evans

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