Wednesday 28th September 2011
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Equity markets rallied in Europe and the U.S., and commodity prices rose as the Greek parliament approved a new property tax, a key condition of gaining more financial aid for the debt-laden country.
The new tax passed 155 votes to 142 against in the 300-member parliament, paving the way for international inspectors to return to Athens to judge Greece’s progress in austerity measures. The nation needs to get an 8 billion euro installment by mid-October to avoid default.
Greeks will pay the tax via their electricity bills, seen as giving authorities greater leverage than through the conventional and loop-hole ridden tax system.
Greek Prime Minister George Papandreou's government also plans to deepen wage cuts and trim pensions further, while reducing the tax-free threshold for income to 5,000 euros. German Chancellor Angela Merkel said her nation would help Greece meet the terms of the bailout.
The Stoxx Europe 600 Index rose 4.4% to 229.91, the biggest advance in 16 months. Germany’s DAX 30 and France’s CAC 40 both rallied more than 5%, while in the U.K., the FTSE 100 gained 4%.
Banks, with direct exposure to Greek debt, were among the biggest gainers. BNP Paribas and Societe Generale soared at least 14%. Rio Tinto led resource companies higher, gaining 7.8%
On Wall Street, the Dow Jones Industrial Average gained 2.8% and the Standard & Poor’s 500 Index rose 2.6%. Companies tied to economic growth including earthmoving equipment maker Caterpillar were among gainers.
“If we step away from the edge and avoid a recession, then there’s no doubt there’s value there,” James Dunigan, chief investment officer at PNC Wealth Management, told Bloomberg.
Optimism that Greece will avoid default and prevent Europe’s sovereign debt crisis from spreading saw German 10-year bunds rose 12 basis points to 1.95%, a seven-week high. U.S. Treasury bonds weakened, with the yield on the benchmark 10-year note climbing 11 basis points to 2.01%, the first time in two weeks it has been above 2%.
U.S. shares also rose after the S&P/Case-Shiller index of property values fell a smaller-than-expected 4.1% in July from a year earlier.
Yet the U.S. economy has further to go. Consumer confidence stalled this month, as Americans complained it is getting harder to find a job. The Conference Board’s sentiment index edged up to 45.4 in September from a 2 ½-year low of 45.2 in August.
Crude oil had its biggest gain in six weeks on optimism over Europe. Crude for November delivery gained 4.5% to US$83.84 a barrel on the New York Mercantile Exchange. Gold for December delivery rose more than 4%.
As confidence over Europe increased, the U.S. dollar and the yen – seen as safe-haven currencies in times of global crisis – fell.
The euro traded at $1.362 from $1.353 yesterday. The yen weakened to 76.71 per dollar from 76.34.
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