Euro hits one-month high against dollar with good news for Spain
THE euro touched a one-month high against the dollar and European shares extended the week's gains this morning after Spain clung on to its investment-grade debt rating.
The decision by ratings agency Moody's came as expectations grow that Spain is getting close to formally requesting aid from its EU Union partners, potentially allowing the region's central bank to begin buying its bonds.
The euro was up 0.4pc at $1.3110, having earlier hit $1.3125, its highest level since September 17.
But investors remain cautious ahead of a meeting of European leaders in Brussels tomorrow and Friday, where help for Spain and Greece is expected to dominate discussions, and there could still be public disagreement over the next steps.
"Our expectation is ... that the European summit yet again will be a disappointment, and then it (the euro) will go back down," said Callum Henderson, global head of FX research for Standard Chartered Bank.
European shares were also making only modest gains ahead of the leader's summit and the release of a batch of economic data from China, due tomorrow, which will shed light on the extent of the slowdown in the world's second largest economy.
The FTSE Eurofirst 300 index of top European shares was up 0.1pc at 1,113.94 points in early trade, helped by strong gains in financial stocks.
Spain's IBEX index led the gains among the regional markets, rising over 1pc, while London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX opened with gains of between 0.2 and 0.4pc.
Moody's decision to keep Spain's bonds at Baa3, albeit with a negative outlook, pulled yields on Spanish government 10-year bonds down 24 basis points to 5.57pc.
Meanwhile, the gains in the euro sent the dollar to its lowest level in a month against a basket of major currencies , with little reaction seen to the latest televised election debate between president Barack Obama and Republican opponent Mitt Romney.
Obama aggressively challenged Romney on jobs, energy and Libya in their second debate last night as the Democrat tried to reclaim the momentum in a tight White House race.
The weaker dollar, which makes dollar-priced commodities more attractive for buyers holding other currencies, supported precious metals, with spot gold rising 0.3pc to $1,752.49 an ounce.