Markets recover from Italian election fallout

Last Updated: Wed, Feb 27, 2013 15:45 hrs

Markets recovered their poise Wednesday as the immediate fallout from the inconclusive Italian elections faded and investors greeted a raft of positive economic news from both sides of the Atlantic.

Stocks around the world took a battering earlier this week as the Italian election results failed to deliver a knockout victory for any one party, or group of parties. Viewed as a vote against austerity and the political establishment, the election outcome highlighted the scale of discontent in a country that is crucial for the future of the euro.

"The panic that had grabbed the markets over the last two days in the aftermath of the Italian election has given way to a more calculated assessment," said Alastair McCaig, market analyst at IG.

In Europe, the FTSE 100 index of leading British shares was up 0.4 percent at 6,293 while Germany's DAX rose 0.5 percent to 7,637. The CAC-40 in France was 1.1 percent higher at 3,662.

On Wall Street, the Dow Jones industrial average was up 0.3 percent at 13,945 while the broader S&P 500 index rose 0.4 percent to 1,502.

A run of positive economic news helped to shore up sentiment.

On Wednesday, new figures from the U.S. National Association of Realtors showed pending sales rose 4.5 percent in January, the biggest increase since April 2010.

And in Europe, a survey showed economic sentiment in the 17-country eurozone rising by more than anticipated in February. The European Commission, the EU's executive arm, said its main economic sentiment indicator for the eurozone rose to a nine-month high of 91.1 in February, from 89.5 the previous month. The expectation in the markets was for a far more modest rise to 89.9.

Italy's FTSE MIB, which was the worst-hit index Tuesday, ending the day nearly 5 percent lower, recovered slightly as negotiations began behind the scenes on how to cobble together a government. The index was 0.7 percent higher at 15,652.

Investors remain wary, however, and that was partly evident in a pair of bond auctions. Though Italy raised the €6.5 billion ($8.5 billion) it wanted, it had to pay higher interest rates to get investors to part with their cash. The country sold 10-year bonds at a yield of 4.83 percent, way up from 4.17 percent last month. The yield on five-year bonds rose to 3.59 percent from 2.94 percent.

The recovery from the Italian election fallout started on Wall Street on Tuesday after some strong U.S. economic figures and a suggestion from Fed Chairman Ben Bernanke that the central bank's low-rate policies currently pose little risk of causing runaway inflation or a stock market bubble. That eased recent jitters the Fed would start to withdraw its super easy monetary policy sooner than many investors think.

The dollar has had a strong week against the euro, particularly in the wake of the Italian election results. However, the euro recovered some of those losses, and was trading 0.3 percent higher at $1.3106.

Earlier in Asia, Tokyo's Nikkei 225 index was the rare loser as the yen strengthened against the U.S. dollar following several months of weakness that has boosted the prospects of the country's exporters. The Nikkei fell 1.3 percent to 11,253.97, while the dollar was 0.5 percent lower at 91.75 yen.

Other Asian markets gained ground. Hong Kong's Hang Seng advanced 0.3 percent to 22,577.01 and South Korea's Kospi added 0.2 percent to 2,004.04. Australia's S&P/ASX 200 gained 0.7 percent to 5,036.60. Shares in mainland China, Taiwan and Indonesia also rose.

Oil prices were steady too, with benchmark crude for April delivery down 15 cents at $92.49 a barrel in electronic trading on the New York Mercantile Exchange.

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