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Summit agreement to end vicious circle buoys markets

LONDON/HONG KONG--Markets breathed a huge sigh of relief Friday after Europe's leaders agreed to a series of measures they hope will help contain the continent's crippling debt crisis.

Perhaps most importantly for markets, the 17 countries that use the euro currency agreed they will let funds intended to bail out indebted governments funnel money directly to struggling banks as well. They said the move will “break the vicious circle” of bank bailouts piling debt onto already stressed governments.

In the run-up to the meeting, investors had expected the summit — like so many meetings before it — would not produce a solution powerful enough to restore the confidence of markets.

Analysts said the proposals from the summit represented credible steps in the region's efforts the crisis. But they say that they are only first steps.

“Italy and Spain used their combined strength to wring significant concessions from Germany, providing investors with reason to think that a real solution to the eurozone crisis is not as far off as had been feared,” said Chris Beauchamp, market analyst at IG Index.

In Europe, Germany's DAX was 2.6 percent higher at 6,309 while the CAC-40 in France rose 2.8 percent to 3,136. The FTSE 100 index of leading British shares was 1.4 percent higher at 5,569.

Perhaps the greatest gauge of the markets' optimistic response to the summit declarations was in the bond markets. Yields on Spanish and Italian debt fell across the board. Spain's was down 0.31 percentage points at 6.59 percent. Spain recently saw its rate edge over the 7-percent level which is seen as unsustainable over the long term.

Wall Street also appeared headed for gains. Dow futures were up 1.1 percent while the broader S&P 500 futures rose 1.4 percent to 1,342.

Asian markets and the euro surged Friday after eurozone leaders struck a surprise deal to allow the bloc's bailout fund to directly support struggling banks and pledged US$150 billion to boost growth.

Regional bourses, which had expected little from the summit, surged on the news, with Tokyo ending 1.50 percent, or 132.67 points, higher at 9,006.78, and Hong Kong closing 2.19 percent, or 416.19 points, up at 19,441.46.

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