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May 29, 2017

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Markets relieved by German ruling on rescue fund

LONDON/HONG KONG--Investors breathed another sigh of relief Wednesday, sending the euro above US$1.29 for the first time in four months after Germany's highest court rejected calls to block the Europe's permanent rescue fund, removing another uncertainty from Europe's efforts to solve its debt crisis.

Even though the decision by the Federal Constitutional Court comes with certain conditions, it means the European Stability Mechanism can be signed off by the country's president and come into force by early next year.

The euro was the big beneficiary from the decision, climbing 0.5 percent on the day to a high of US$1.2920, the first time it's been above the US$1.29 threshold since May 14.

The dollar, meanwhile, bought 77.88 yen in Tokyo trade, from 77.73 yen in U.S. trade where the greenback had earlier touched 77.71 yen, its lowest level in about three months.

The greenback slipped against other Asia-Pacific currencies.

It weakened to 30.92 Thai baht from 31.10 baht on Tuesday, to 55.23 Indian rupees from 55.47 rupees and to NT$29.59 from NT$29.70. The unit also fell to 9,574 Indonesian rupiah from 9,587 rupiah, to 1,125.50 South Korean won from 1,128.90 and to SG$1.2280 from SG$1.2345. The dollar bought 41.47 Philippine pesos from 41.63 pesos.

China's yuan traded at 12.30 yen against 12.31 yen while the Australian dollar was at US$1.0479 against US$1.0336.

Stocks also got a boost, with Germany's DAX up 0.9 percent at 7,375 and the CAC-40 in France 0.7 percent higher at 3,562. The FTSE 100 index of leading British shares was 0.2 percent firmer at, 5805.

The fund is important because it can loan money to cash-strapped governments. It's also due to play a key role in the recent bond-buying plan unveiled by European Central Bank president Mario Draghi, the main reason behind the turnaround in market sentiment over Europe over the past few weeks.

"With the Germans now seemingly fully committed to the ESM, and the Draghi plan in force, hopes are high for an easing of the eurozone crisis," said Chris Beauchamp, market analyst at IG Index.

The borrowing rates of countries at the frontline of Europe's debt crisis eased further Wednesday, with the yield on Spain's 10-year bonds down 0.07 percentage point to 5.60 percent and Italy's falling 0.03 percentage points to 4.98 percent. Not long ago, both countries were seeing this key interest rate above 7 percent, widely-considered as unsustainable in the long-run.

Despite the positive reaction in the markets, investors think Europe is a long way from being fixed. Greece still has to convince creditors that it deserves more bailout money, while Spain appears undecided about whether to tap the ECB's bond-buying facility.

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