European shares shrug off Spain downgrade

October 12, 2012 - 2:57:27 am

LONDON: Europe’s main stock markets rose yesterday, shrugging off Standard & Poor’s slashing Spain’s credit rating, and gained added steam from a big drop in US jobs claims.

London’s benchmark FTSE 100 index of top companies ended the day up 0.92 percent at 5,829.75 points, while in Frankfurt the Dax 30 added 1.06 percent to 7,281.7 points and in Paris the CAC 40 jumped 1.42 percent to 3,413.72 points.

Wall Street also clocked gains after the US Labour Department reported that new claims for unemployment insurance benefits plunged unexpectedly last week to a four-year low of 339,000. 

In midday trade the Dow Jones Industrial Average had climbed 0.19 percent to 13,370.78 points, while the S&P 500 gained 0.42 percent to 1,438.56 points, and the tech-rich Nasdaq added 0.26 percent to 3,059.82 points.

In foreign exchange trading, the euro rose to $1.2929 from $1.2887 late in New York on Wednesday. 

“Stocks and commodities have caught a tailwind today, boosted by better than expected jobs numbers out of the United States,” said CMC Markets analyst Colin Cieszynski.

Spain vowed yesterday to defy predictions of a deep recession next year after the credit rating downgrade left its debt hovering just above junk-bond status.

Standard & Poor’s sliced the nation’s rating late on Wednesday, citing a deepening recession with one-quarter of workers unemployed, mass protests, and growing political friction between Madrid and the debt-struck regions.

S&P cut the rating to BBB- from BBB+, just one level above “speculative” or “junk” grade debt, which could have sent Madrid’s borrowing costs skyrocketing to untenable levels. “There were concerns earlier that the two-notch Spanish downgrade would have a negative effect on the markets given the uncertainty surrounding Spain at the moment,” said James Hughes, chief market analyst at Alpari trading group.

Madrid’s IBEX 35 index spent the morning down, but climbed into positive territory after the US jobs numbers, and ended the day with a gain of 0.87 percent. “What we’ve actually seen is only a very small reaction given the scale of the downgrade to near junk status.”

Spanish bond yields even eased slightly yesterday, down to 5.764 percent from 5.804 percent on Wednesday, and Hughes noted they remained “far below the levels that are considered to be unsustainable.” S&P expressed doubts that all eurozone governments would back the bloc’s effort to recapitalise Spanish banks, leaving more of the burden at least on the Spanish government, which might need a full bailout. 

In London, shares in Burberry soared 9.97 percent to 1,136 pence after the British luxury clothing and accessories group’s second-quarter performance reassured markets despite a recent profits warning. In Paris meanwhile, shares in Carrefour jumped 3.69 percent to ¤16.58 after the French supermarket giant said its third quarter sales gained 2.1 percent, helped by an increase in its ailing home market and in Latin America.