Reuters News - German backing for ECB action lifts stocks, euro

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange August 17, 2012.

Credit: Reuters/Remote/Amanda Andersen

By Marc Jones

LONDON | Fri Aug 17, 2012 5:42am EDT

(Reuters) - Global shares hit three-month highs on Friday, with top European stocks and the euro lifted by apparent support from German Chancellor Angela Merkel for European Central Bank intervention to calm the euro zone's debt troubles.

Merkel said declarations by ECB President Mario Draghi, who outlined conditional plans at the start of the month to buy bonds of troubled euro zone governments, were "completely in line" with the approach taken by European leaders and urged the bloc to now act swiftly to tackle its woes.

Hopes the bloc may finally be getting a grip on its problems lifted top European shares .FTEU3 0.19 percent by mid morning, putting them on track for their best weekly run in seven years.

"Generally, the newsflow has been positive for risk sentiment and the appraisal of the policy response in the euro zone. In the U.S., we have seen some positive data surprises as well," said Ian Richards, head of equity strategy at Exane BNP Paribas.

The main indexes in London .FTSE, Paris .FCHI and Frankfurt .GDAXIwere all in positive territory, helping the MSCI index of global shares .MIWD00000PUS, at their highest since May 4, to extend an 11.5 percent gain that started back in June.

European and global share markets have been riding high in recent weeks on hopes that new crisis plans being drawn up by the ECB, and due to be detailed at the start of September, will put a floor under Spain and Italy's troubles and prevent the euro from unraveling.

The euro was buoyant at $1.2376 and also hit a six-month high against the yen.

U.S. futures pointed to a flat open on Wall Street, with futures for the S&P 500 down 0.08 percent, Dow Jones futures up 0.05 percent and Nasdaq 100 futures up 0.13 percent by 0815 GMT.

OIL SLIP

Oil prices slipped below $114 a barrel after sources told Reuters the U.S. was dusting off plans for a possible release of oil reserves.

Gold inched up to $1,617.66 an ounce.

Demand for German government bonds continued to wane on Friday, as the appetite for riskier assets which offer a better returns, continued to strengthen.

Bund futures fell 20 ticks on the day to 141.58. They have come off more than 3 full points since the ECB's Draghi promised last month to do whatever it took to "preserve the euro".

Ten-year German government bond yields, which move in the opposite direction to the price, were up 1.2 basis points at 1.54 percent, while those for Spain and Italy were both lower.

"With this 1.5 percent taken out, I wouldn't be surprised to see 10-year Bund yields edging a bit higher towards 1.60-65," said Rainer Guntermann, strategist at Commerzbank. "At that level, they should start to look a little more attractive ... going into September."

September is a crunch period for the euro zone and its hopes to overcome its debt troubles.

The ECB is due to flesh out its new bond buying crisis strategy by September 6, and Germany's constitutional court will deliver a ruling on September 12 on the euro zone's permanent ESM rescue fund, before which Berlin cannot ratify it.

Dutch elections are held on the same day. And on September 14/15, European Union financeministers meet in Cyprus. By then, the troika of EU, IMF and ECB inspectors may have also delivered a verdict on Greece's debt-cutting progress.

(Reporting by Marc Jones; Editing by Will Waterman)