Global shares, euro lifted by ECB aid plan hopes

However, a sharp drop in shares of Standard Chartered Plc after New York's bank regulator threatened to tear up its state banking license helped to hold back gains in European stocks.

"Hopes of action in Europe are certainly still persistent," said Keith Bowman, equity analyst at Hargreaves Lansdown. "There is still an element of relief coming through from the U.S. employment figures," he added, referring to Friday's better-than-expected jobs data.

The cautious hopes that Europe's three-year crisis was edging towards a solution lifted the MSCI world equity index <.miwd00000pus> 0.2 percent to 321.14 points, near its highs of May this year.

Share markets have enjoyed renewed demand from investors over the past three months as high-rated government bond returns have fallen sharply due to demand from investors seeking safety from the troubles in Europe, increasing the relative attractiveness of blue-chip stocks.

"Both growth and income investors are now hunting down the 4 percent dividend yields you can get on many global blue chips," said Tom Elliott, global strategist at JP Morgan Asset Management.

European shares had a choppier day after it emerged that the powerhouse German economy had taken a bigger hit than expected in June due to weakness across the euro zone.

German industrial orders fell 1.7 percent on the month, after contracts from the euro zone fell by 4.9 percent.

Data also showed Italy's recession extending into a fourth consecutive quarter as GDP fell 2.5 percent year-on-year in the three months to the end of June. "We believe Italy faces another two quarters of negative GDP growth this year," said BNP Paribas economist Catherine Colebrook. "There is little sign as yet of light at the end of the tunnel."

The FTSEurofirst 300 index <.fteu3> of top European companies managed a slight gain of 0.2 percent to 1,088.16 points by midday in Europe, while the Euro STOXX 50 <.stoxx50e>, the index of blue chip euro zone stocks, was up 1.1 percent.

BANKERS TRUST

European banking shares <.sx7p>, which had rallied more than 12 percent over the previous nine days, were also weighing on the broader index as more allegations hit the sector.

Standard Chartered led the declines, falling by over 23 percent and losing $16 billion of market capitalization, after New York's top bank regulator threatened to remove its state banking license, saying the British-based lender hid $250 billion in transactions tied to Iran.

"The trust issues surrounding the banking sector just don't seem to be going away," said Brenda Kelly, market analyst at CMC Markets.

The euro was still basking in the glow of ECB President Mario Draghi's promise that the central bank was "ready to do whatever it takes to preserve the euro", and the expectations it would intervene to help Spain and Italy.

The euro was up 0.1 percent at $1.2415, nearing the one-month high of $1.2444 touched on Monday which was its strongest level since early July.

"We are expecting the euro to rise to $1.26 in a month's time and $1.30 in three months, partly due to renewed optimism about the euro zone and partly because of the dollar's weakness," said Michael Sneyd, FX strategist at BNP Paribas.

In the debt market the optimism engendered by the ECB was easing pressure in the Spanish and Italian bonds but, after strong gains since Draghi's comments last Thursday, these were beginning to taper off.

Spain's 10-year bond yields were 1.5 basis points lower at 6.78 percent, with the Italian equivalent 9 basis points lower at 5.91 percent.

"People are starting to reprise the Italian and Spanish risk ... It's not over, and I don't expect the process to stop until we have an accident," said Francois Duhen, strategist at CM-CIC Securities.

However, investors remain cautious about the next steps, as ECB action can be triggered only when a country decides its finances are in such bad shape that it needs a bailout, which could arouse new fears about the whole region.

The ECB plans to resume bond buying - possibly as soon as September - which will target shorter dated sovereign debt and aim to complement the combined firepower of the region's two bailout funds while keeping the pressure on governments to reform.

But the euro zone's new permanent bailout fund has yet to be formally approved by paymaster Germany and rules governing any ECB bond buying still have to be agreed by internal committees at the central bank.

Oil prices were enjoying good gains on the ECB hopes along with supply worries stemming from North Sea maintenance, Middle East tensions and the start of hurricane season in the Gulf of Mexico, which could disrupt oil and gas production.

Brent crude for September delivery rose 79 cents to $110.34 a barrel, climbing above $110 a barrel for the first time since mid May. U.S. crude firmed by 33 cents to $92.53.

Spot gold was up 0.1 percent at $1,612.80 an ounce, but U.S. gold futures for August delivery were down 70 cents an ounce at $1,615.50.

(Additional reporting by Marc Jones and David Brett; Editing by David Stamp)

Source: http://news.yahoo.com/global-shares-steady-sustained-policy-hopes-eyes-rba-003059627--finance.html

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