MOSCOW-European stock markets were sharply higher yesterday as investors hoped the Federal Reserve would signal new stimulus measures. But concern over Greece's ability to form a stable government and Spain's rising borrowing rates kept investors on edge. Britain's FTSE 100 closed 1.73 per cent higher at 5,586.31 and Germany's DAX added 1.84 per cent to 6,363.36. France's CAC-40 rose 1.69 per cent to 3,117.92.
It was unclear whether the Fed would take any new action when its two-day meeting ends today. Many expect the central bank to extend a program in which it sells short-term bonds to buy long-term ones. The Fed could also launch a new round of bond buying aimed at lowering mortgage rates, although the impact of such a move on markets was unclear.
Analysts said that, overall, the Fed was likely to provide some form of support to market confidence as the US economy continues to struggle and Europe's debt crisis rages on. A weekend electoral victory by Greek conservatives, who favour upholding an austerity program that their country entered into for an international bailout, only temporarily relaxed fears of a chaotic exit by Greece from the euro.
The next crucial question for the country, which is expected to form a government this week, will be whether it can ease some of its austerity terms. Several European officials have said it's necessary but Germany has so far opposed such a move. Besides Greece, the focus was also on Spain, whose borrowing costs surged this week above the 7 per cent level that had forced other European countries to seek international help.
The rate reflects what return investors are willing to accept when a country auctions its bonds. On Tuesday, interest rates on short-term Spanish debt soared past 5 per cent in an auction that raised €3.39 billion ($4.28 billion). Worries about Spain's ability to repay its debt grew last week, when the country agreed to accept a eurozone loan of up to €100 billion to shore up its ailing banks, which are sitting on massive amounts of soured real estate investments.
Against that backdrop, investors were eyeing the Group of 20 summit in Mexico for signs world leaders would boost economic growth or find solutions to the European crisis. Analysts at Credit Agricole warned that market patience with Europe's troubled economies was running out and that any "G-20 statements or commitments to boost IMF resources will do little to ease tensions."
The International Monetary Fund said Monday that it raised $456 billion to fight the financial crisis after emerging economies such as China, Brazil and Russia pledged to expand their funding of IMF funds. Earlier, Asian stocks mostly closed lower. Japan's Nikkei 225 index fell 0.8 per cent to 8,655.87 while Australia's S&P/ASX 500 lost 0.3 per cent. South Korea's Kospi dropped 0.3 per cent. Benchmarks in mainland China and Taiwan fell.
AP
