Markets rise on continued EU bailout deal optimism: live coverage
European shares set to extend rally on back of euro debt summit
8.50am: Paul Donovan at UBS reckons the Italian bond auctions today are likely to attract perhaps disproportionate attention. "The European big plan needs Italy to stabilise its bond markets, and the EFSF and ECB support are geared to this objective."
8.47am: The FTSE briefly dipped into negative territory, but is now up nearly 8 points again at 5721.
8.25am: All eyes are on China today, where EFSF chief Klaus Regling is trying to drum up support for the bailout fund.
But he appeared to dash any hopes of a quick deal, although he expects the cash-rich country to carry on buying bonds issued by the fund. "We all know China has a particular need to invest surpluses," he said at a news conference, referring to the country's foreign exchange reserves of $3.2tn - the world's biggest stockpile. China has been a regular buyer of bonds issued by the EFSF and analysts estimate about a quarter of its reserves are held in euro-denominated assets.
Regling was due to meet officials from China's central bank and finance ministry. He said he was also in contact with other sovereign funds around the world. He added the EFSF was designing new investment instruments and testing models to scale up the fund. He wanted to hear from Chinese officials how the fund could structure investments that would attract capital. The 440bn bailout fund was set up last year and has already been used to provide aid to Portugal, Ireland and Greece.
Regling said the bailout deal with Greece was an exceptional case and he saw no need to repeat it for other nations. He is in Beijing just a day after eurozone leaders struck a last-minute deal to increase the firepower of the EFSF to 1tn and write down half of Greece's debt. They are now under pressure to finalise the details and strengthen their efforts to revive the eurozone economies.
Beijing has not said publicly it w! ould inv est in the fund, although it has repeatedly expressed confidence that Europe can overcome its two-year-old debt crisis. "I think the EFSF can offer a good product that is commercially interesting," Regling said, adding that China should be assured that the EFSF's triple-A rating is solid.
When asked if China was asking for any special concessions in return for its support, Regling said Beijing hadn't done so. "When they buy our bonds, they buy the same bonds as everybody buys," he said. "There is no special deal and so it is normal conditions and we published those conditions on our website."
Chinese President Hu Jintao said China hoped the measures agreed in Brussels would help stabilise the eurozone, which is China's biggest export market. In September, exports to the eurozone ran at less than half the rate of August, underlining concerns that the region may already be in recession.
8.11am: The FTSE opened about 13 points higher, but is now trading just 3 points up. Royal Bank of Scotland, Barclays and HSBC are the biggest risers. Germany's Dax has opened 0.4% higher, Spain's Ibex has added 0.2% and France's CAC and Italy's FTSE MIB are both up 0.3%
7.31am: Good morning and welcome back to the live blog. It looks like yesterday's stock market rally will continue for a second day, with traders still riding high on the euro summit deal. Bank shares enjoyed a relief rally, and the FTSEurofirst 300 index of top European shares is on track for its best monthly performance in 30 months. Figures showing the US economy growing at its fastest pace in a year also added to the optimism yesterday, and the Dow Jones closed nearly 340 points, or 2.9%, higher at 12208.55.
Markets in Asia rose overnight, with Japan's Nikkei finishing 1.4% higher and Hong Kong's Hang Seng climbing 2%.
EFSF chief Klaus! Regling is visiting Beijing today, begging bowl in hand, to try to secure financial support for the eurozone bailout fund, after French president Nicolas Sarkozy spoke with Chinese president Hu Jintao.
Gary Jenkins, head of fixed income at Evolution Securities, summed up yesterday's events:
Markets reacted positively to the European summit announcements despite the lack of details provided. Bank shares experienced a relief rally as a substantial part of the 106bn capital increase is already covered by euro area bailout programmes or is seen to be achievable through retained earnings and balance sheet reductions. The three largest French banks were up 19% on the day. Even Greek bank shares rose some 5.4% despite the prime minister saying some banks would be nationalised as part of the recapitalisation process. A bit harsh really, the banks hold substantial amounts of government debt, the government fails to honour its debts and therefore the banks get nationalised
There were reports that during the negotiations over private sector participation French president Sarkozy had said that unless banks agreed on the required voluntary haircut on Greek debt there would be a full default with a recovery rate of zero. The deal will be voluntary in that it is not legally binding on all bond holders and as such according to David Green, general counsel for ISDA, it will not constitute a credit event and therefore won't trigger CDS, but it must be close call on what constitutes coercion.
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