WORLD MARKETS TORN BY EU DEBT DEAL, IRISH DOWNGRADE
LONDON, DECEMBER 18, 2010 (STAR) (AP) — European stocks traded flat Friday after EU leaders agreed to create a system to solve future debt crises, but a sharp ratings downgrade of Irish government bonds underscored the scale of Europe's short-term problems.
Outside Europe, sentiment was buoyed somewhat by upbeat US economic figures and indications Chinese policymakers are reluctant to raise interest rates. Asian shares rose and US pre-open futures pointed slightly up.
Britain's FTSE 100 and Germany's DAX were both flat, at 5,879.38 and 7,022.21. France's CAC-40 was 0.3 percent higher at 3,898.40.
Asian markets closed mostly higher and Wall Street was expected to edge up on the open — Dow futures were 3 points higher at 11,434 and Standard & Poor's futures were up 0.1 point at 1,238.60.
EU leaders on Thursday night agreed to create a new crisis resolution mechanism to kick in after 2013, when the current $1 trillion bailout fund. The system would force losses on private investors in some cases and encourage countries with weak finances to clean up their balance sheets.
The 27 nations, however, did not agree on any measures to ease the debt crisis now. Upon resistance from Germany and France, the region's paymasters, the bloc decided not to increase the current bailout fund and rejected the notion of creating European bonds.
"There was nothing by way of advancements to the near-term measures to maintain liquidity in the peripheral economics," said Jonathan Loynes, analyst at Capital Economics.
The result was that while the euro gained after the deal on improved longer-term prospects, bond yields — a measure of investor confidence in nations' finances — barely moved.
"The reality for markets is that little concrete has been delivered," said Daragh Maher of Credit Agricole CIB.
The scale of the near-term problems was underscored Friday by a downgrade of Irish debt by Moody's Investors Service. The agency slashed Ireland's rating by five notches and left the door open for more downgrades, citing massive losses from the banking system and a weak economic outlook in the wake of its international bailout last month.
Earlier this week, Moody's warned it was considering downgrades of Greece and Spain as well.
While news on Europe's so-called 'periphery' was unrelentingly poor, Germany's economic rebound continued unabated. Business confidence there rose again this month, the Ifo survey showed, defying economists' expectations.
Germany has enjoyed a surge in exports, but its domestic consumer spending has also been picking up ahead of the crucial holiday spending season.
That theme was seen in the US as well, where economic indicators have largely been strong in recent weeks.
US reports this week on jobs, factory production and consumer spending as well as a tax cut plan poised for approval by lawmakers are spurring economists to predict hiring and housing in the world's largest economy will gain strength in 2011.
China, meanwhile, is trying to control its fast-growing economy and douse rising inflation, which has led to speculation it may follow a recent increase in bank reserve requirements with another interest rate hike.
The Shanghai Composite index fell 0.2 percent to 2,893.74.
"Investors remained optimistic, but also pretty cautious, especially when the possibility of another rise in interest rates within 2010 is still large," said Peng Yunliang, an analyst at Shanghai Securities.
Hong Kong's Hang Seng index recovered from earlier losses to eke out a rise of 0.2 percent to 22,714.85.
Japan's Nikkei 225 stock average declined 0.1 percent to 10,303.83 amid concerns the market may have risen too far recently. The Nikkei has gained about 5 percent over the last month.
Australia's S&P/ASX dropped 0.3 percent, though South Korea's Kospi rose 0.9 percent to remain at a three-year high. Benchmarks in Taiwan, Singapore, New Zealand, the Philippines and Indonesia also advanced.
In currencies, the dollar fell slightly to 83.90 yen from 83.92 yen late Thursday. The euro rose to $1.3320 from $1.3243.
Benchmark oil for January delivery was up 37 cents at $88.07 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 92 cents to settle at $87.70 on Thursday.
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