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Europe gets some breathing room as markets rally

November 28, 2011 | 12:58 pm

European markets pulled back from the brink Monday as government bond yields fell in most Eurozone countries and stocks rebounded.

Investors may simply have been relieved that after days of unrelenting bad news from the continent, the bottom didn’t fall out.

Also, once markets began to rally the turnaround would have put pressure on “short sellers” who had borrowed securities and sold them, betting on further declines. If they were buying to close out their bets, it would have added fuel to the turnaround.

The German, Italian and Spanish stock markets all were up 4.6% for the day. French shares jumped 5.5%. Even Greek stocks managed to gain, adding 0.4%.

Wall Street also snapped back, with the Dow Jones industrials up 291 points, or 2.6%, to 11,523.

For the most part, though, the gains just recouped last week’s losses, which had pushed some Eurozone markets close to their 2011 lows reached in September.

The euro currency rose 0.5% to $1.331 in New York.

It helped that Italy and Belgium were able to sell new bonds Monday, though at pricey levels.

Some investors may be speculating that Eurozone leaders will announce bold new measures this week to contain the debt crisis. Eurozone finance ministers meet Tuesday and European Union finance ministers meet Wednesday.

“Overall, there appears to be a sense of greater urgency among Eurozone leaders after some very worrisome developments last week,” said Kathy Lien, director of currency research at GFT in Jersey City, N.J.

Portugal and Belgium both were hit last week by further cuts in their bond ratings. Early Monday, Moody’s Investors Service warned that the spreading debt crisis was "threatening the credit standing of all European sovereigns."

Bond markets in most major Eurozone countries gave policymakers a little breathing room, as yields eased. The yield on two-year Italian bonds fell to 7.11% after hitting a euro-era high of 7.66% on Friday. Spanish two-year bond yields dropped to 5.75% from 6.09%.

But investors continued to bail out of Portuguese debt, pushing the country’s two-year bond yield to 18.29% from 18.11% on Friday.


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Is a Eurozone breakup now inevitable -- and imminent?

-- Tom Petruno

Photo: A stack of 50-euro notes. Credit: Simon Dawson / Bloomberg News