Stocks recover as euro countries lift bailout fund

March 30, 2012 - 8:42 AM

LONDON (AP) — European markets recovered some ground Friday after sharp losses this week, as finance ministers from the 17 euro countries agreed to bolster the amount of money available for any future financial bailouts.

Though the target of €1 trillion ($1.3 trillion) requested by a number of international institutions, as well as the U.S. and China, was not met, there was some relief in the markets that the ministers agreed to increase the firewall to €800 billion ($1.06 billion).

"The better mood comes as European finance ministers announced that the bailout facility will be expanded," said Benjamin Reitzes, an analyst at BMO Capital Markets.

Many in the markets see increasing the firewall as a sure step in dampening down the debt crisis, which has crippled the eurozone for the past couple of years. The fear is that the euro bloc just won't have enough resources to help out Spain and Italy, should they need outside help.

Worries that Spain will be dragged into the debt crisis mire has weighed on markets this week. The new Spanish government is expected to unveil a tough budget later as it attempts to get the deficit down to levels sanctioned by its partners.

Even though a deal to boost the bailout resources, there are many doubts over whether Italy or Spain, the eurozone's third and fourth largest economies could be saved if the markets lose confidence.

"The reality is that the firewall is likely to be both underwhelming and insufficient to deal with potential problems in Spain and Italy," said Neil MacKinnon, global macro strategist at VTB Capital.

For now, European stocks have recovered some of their losses this week. Germany's DAX was up 0.9 percent at 6,935 while the CAC-40 in France rose 1.2 percent to 3,420. The FTSE 100 index of leading British shares was up 0.5 percent to 5,772.

Wall Street was poised for a solid opening too, with both Dow futures and the broader S&P 500 futures up 0.4 percent.

The euro was also 0.4 percent higher at $1.3351, supported by figures showing inflation in the eurozone in March only fell to 2.6 percent from the previous month's 2.7 percent. The market consensus had been for a fall to 2.5 percent so markets have moved to remove any imminent prospect of a further reduction in borrowing costs by the European Central Bank.

Earlier in Asia, sentiment in stock markets was hurt by news that Japan's factory production fell a worse-than-expected 1.2 percent in February — its first decline in three months — as demand for exports weakened. The Nikkei 225 index in Tokyo fell 0.3 percent to close at 10,083.56.

Hong Kong's Hang Seng fell 0.3 percent to 20,555.58, while mainland Chinese shares were mixed. The benchmark Shanghai Composite Index gained 0.5 percent to 2,262.79 while the Shenzhen Composite Index lost 0.4 percent to 891.84.

Oil prices bounced back alongside equities — benchmark oil for May delivery was up 54 cents to $103.32 per barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the contract plunged $2.63 to $102.78 after French Prime Minister Francois Fillon said there's a "good chance" that the U.S. and Europe will agree to release some of their oil reserves.

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Pamela Sampson in Bangkok contributed to this report.