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Some hopeful signs in otherwise grim markets

A few snippets of good news even as stock markets remained in meltdown mode Wednesday:

--- Eurozone bond yields fall: While European stock markets were pummeled, interest rates continued to fall on Italian and Spanish government bonds Wednesday as the European Central Bank again stepped into the market to buy the debt.

Italy10 The yield on 10-year Italian bonds (charted at left) fell to 5.10%, down from 5.18% on Tuesday and the lowest since July 5. Spanish 10-year bond yields fell to 5.03%, down from 5.08% Tuesday and the lowest since November.

The drop in yields at least relieves some of the fear that Spain and Italy could quickly go the way of Greece, Ireland and Portugal in needing European Union bailouts.

Yields also fell on French government bonds, despite rumors that France could lose its AAA credit rating. The 10-year French bond yield fell to 3.07% from 3.23% on Tuesday.

All three major credit-rating firms said they had no plans to downgrade France.

--- Most U.S. stock indexes end above Monday's lows: As noted in this post from Monday, U.S. small- and mid-size stock indexes are in new bear markets, based on the rule of thumb that a 20% drop ends a bull market.

But those indexes, and most major U.S. indexes except the Dow, ended on Wednesday above their closing levels on Monday. In other words, after Monday’s dive, Tuesday’s rebound and Wednesday’s renewed sell-off, many stocks did not set new 2011 lows.

Rty The Russell 2,000 small-stock index (charted at right) sank 5.2% on Wednesday to 660.21, but that was above Monday’s close of 650.96.

Still, the indexes may just have been saved by the closing bell: They all were in fast retreat in the last few minutes of the session.

If they can hold above their Monday lows on Thursday that may give investors more hope that we’ve reached at least a short-term bottom.

--- Cash flows back into money funds: U.S. money market mutual funds took in a net $61.3 billion in new cash in the seven days ended Tuesday, boosting total assets to $2.59 trillion, according to iMoneyNet.

Why is that important? It recoups about 60% of what the funds lost in the previous week, when investors yanked a net $103.2 billion as Congress continued to battle over extending the federal debt ceiling.

Some investors fled the funds, worried that the portfolios could suffer losses if the Treasury defaulted on some of its debts. That raised fears of a continuing exodus that could force the funds to dump securities, which could pose a serious threat to the financial system.

With investors returning to money funds, that’s one less worry for financial regulators.

-- Tom Petruno

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