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The debt crisis that haunts Europe found a temporary reprieve as an auction of Spanish debt was met with strong demand Thursday. The euro, for the moment, gained some strength and was further buoyed by the European Central Bank, which elected to keep its bank-to-bank interest rates at historic lows.
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The ECB decision was splashed across headlines above the fold Thursday, a routine and widely-expected maneuver suddenly made all the more critical, given the fragility of Europe's financial system. In Portugal, Spain, Italy, now Belgium, financial analysts are looking under stones, expecting the unnerving worst that might rattle investors. A small, test-the-water bond auction in Portugal did well Tuesday. Had it not, there might be another crash to report.
The ECB, in its role as cornerstone of the continent's currency, has become all the more the anchor for Europe's economies.
"I cannot recall in my experience a more important ECB monetary policy meeting than the one taking place today," currency analyst Derek Halpenny at the Bank of Tokyo-Mitsubishi UFJ said in a research note, The New York Times reported.
Halpenny further said the anticipation was so high that there was hardly room for the central bank to do anything but disappoint everybody.
"There would appear to be plenty of scope for disappointment," he wrote.
What the ECB can also do is increase its purchases of government bonds to shore up the market that defines where the rubber meets the road in Europe's ongoing crisis. Demand for bonds lowers interest rates for investors and governments.
"The market needs some signal that this is something the ECB is prepared to do," economist Nick Mathews of RBS Global Banking & Markets told the Times. And the sentiment is not scarce. In New Delhi, Dominique Strauss-Kahn said simply, "Growth is the most important thing," which is perhaps studiously shy of saying it is the only thing.
Central bank bond purchases can lower interest rates long-term, which adds liquidity to financial systems, but they can also restore confidence that markets lack. The ECB stepped in to buy Greek bonds in May and critically waved away concerns over Greece's credit rating. After a flurry of purchases, the ECB relaxed its buying program, only to step up buying again last week, spending another $1.77 billion on debt.
In international markets Thursday, the Nikkei 225 index jumped 1.81 percent while the Shanghai composite index in China added 0.71 percent. The Hang Seng index in Hong Kong climbed 0.86 percent while the Sensex in India rose 0.72 percent.
The S&P/ASX 200 index in Australia gained 1.95 percent.
In midday trading in Europe, the FTSE 100 index in Britain rose 0.69 percent while the DAX 30 in Germany lost 0.07 percent. The CAC 40 in France gained 0.44 percent while the Stoxx Europe 600 rose 0.32 percent.
