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Markets remain relatively upbeat after solid Italian debt auctions, but caution abounds
PARIS (AP) ' Another set of solid Italian bond auctions on Friday helped sustain the recent optimism in the markets that Europe's debt crisis has calmed down somewhat, though investors think there's still a long way before the situation stabilizes.
Surprisingly strong bond auctions in Spain and Italy on Thursday reinforced hopes that policymakers may finally be getting a grip on Europe's debt crisis after months of procrastination and indecision.
With the borrowing rates they both had to pay down and demand buoyant, there are clear signs that the European Central Bank's strategy to offer cheap liquidity to banks is helping to ease tensions elsewhere. Many banks, awash with cash from the ECB, are using their cheap money to buy up other assets, which yield more, such as government bonds from Europe's more-imperilled countries.
That sense of a trickle-down of the new liquidity was sustained by a second set of Italian auctions on Friday. Italy easily raised euro4.75 billion ($6.1 billion) and the borrowing rates it had to pay were way down on those it has had to pay recently.
The results helped sustain the rally in markets witnessed for much of this week though caution abounds especially as Greece tries to persuade private creditors to drastically reduce its debts or risk default. Some have said a deal is close, but others contend significant hurdles remain.
"The war is a long way from being resolved (either way), and as such these euro area auctions will continue to present themselves as market risk events for a very protracted period," said Marc Ostwald, a strategist with Monument Securities.
In Europe, France, the CAC-40 jumped 1.1 percent to 3,235, while Germany's DAX rose 0.4 to 6,205. The FTSE index of leading British shares was up 0.2 5,675.
But after soaring a day earlier, the euro moved down 0.2 percent to $1.2795.
Wall Street was also set to open slightly lower though a rafter of corporate earnings could change that. Dow futures were down 0.1 percent at 12,402, while S&P 500 futures were down the same rate to 1,290.
Though the pick-up in the stream of U.S. earnings will impact markets over the coming days and weeks, Europe's debt crisis is likely to remain the main focus.
Europe's crisis sprang from worries that countries had taken on more debt during boom years than they could pay back once their economies slowed.
Those concerns led investors to demand astronomically high yields or interest rates to lend money to countries like Greece, Ireland and Portugal, eventually forcing those three to seek bailout loans, rather than rely on market financing.
In recent months, it has seemed as if Italy would join that ignominious club, but that would present an insurmountable challenge: Italy's economy dwarfs the three that have sought rescues and Europe can't afford to bail it out.
Earlier, Asian shares were mostly higher. Japan's Nikkei 225 index rose 1.4 percent to close at 8,500.02 and South Korea's Kospi index moved 0.6 percent at 1,875.68. Hong Kong's Hang Seng index vacillated before closing in positive territory, up 0.6 percent to 19,204.42.
But mainland Chinese shares fell as investors continued to cash in on recent gains. The benchmark Shanghai Composite Index lost 1.3 percent to 2,244.58, while the Shenzhen Composite Index dropped 3.5 percent to 845.93.
Oil was staging a small comeback Friday after plummeting in price on Thursday amid rumors that Europe would delay its embargo of Iranian oil. Oil prices had been steadily rising amid fears of a supply crunch if a coordinated embargo were put in place.
Benchmark oil for February delivery rose 17 cents to $99.29 per barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.