European stocks rally on positive results from Germany
THE euro and European stocks staged a surprise rally yesterday on news the German economy is weathering the economic crisis even better than expected.
The euro rose back over $1.30 against the dollar, and European shares reversed early losses to finish up and ended a two-week slide after the news.
German business sentiment rose in December, helped by solid consumer demand in the run-up to the Christmas holiday, the Munich-based Ifo think tank said.
Two influential research agencies also said the German economy would continue to grow next year, though only just.
The Kiel-based IfW institute said economic growth would slow to 0.5pc in 2012 from 2.9pc this year.
The RWI in Essen said growth would be 0.6pc next year, compared with its prediction for 3pc growth this year.
Both institutes cut their outlook for next year from earlier predictions.
The good news may well prove short-lived, however.
Fitch Ratings said it would cut the credit rating of the main European bailout fund if France was hit with a ratings downgrade.
France is one of six 'AAA' rated countries that have guaranteed loans raised by the European Financial Stability Fund.
On Monday, Fitch changed the long-term outlook for France to negative from stable.
Yesterday, Fitch warned that French banks risked being downgraded. Rival rating agency S&P is expected to start announcing a series of eurozone sovereign rating downgrades, including cutting France's 'AAA', possibly as early as today.
Even an expected rating downgrade could turn the fragile sentiment in the money markets negative.
Investors need little reminding of the risks of lending into Europe.
Yesterday, Greek Finance Minister Evangelos Venizelos revealed that he was close to reaching the deal with private-sector bondholders for so-called 'private-sector involvement' in the second Greek bailout.
"We are close to an agreement, I believe that," Mr Venizelos said. (Reuters)