China data boosts stocks; Greek bond yields soar

By Jeremy Gaunt, European Investment Correspondent

LONDON, June 14 (Reuters) – Evidence that China may avoid a hard landing for its high-flying economy lifted riskier assets such as stocks on Tuesday and Greece managed to raise short-term funds despite becoming S&P’s lowest-rated sovereign borrower.

Wall Street looked set to open stronger.

Greece sold 1.625 billion euros ($2.33 billion) of 6-month T-bills a day after Standard & Poor’s rated its debt extremely speculative.

It had to pay a higher yield — 4.96 percent versus May’s 4.88 percent — but attracted a larger percentage of foreign buyers than the previous auction, reflecting market expectations Greece will secure a second rescue package to stave off default, at least over coming months.

The cost of insuring Greek debt against default over five years rose, as did the yield on Greek government bonds, to a record high.

But Greek stocks reversed losses to put in modest gains and European shares were otherwise buoyant.

Euro zone finance ministers were to meet in Brussels where the crisis and a disagreement between the European Central Bank and a clutch of euro zone states led by Germany over whether Greece should restructure will take centre stage.

Financial markets were focused on data from China which was interpreted as negating the need for aggressive tightening by policymakers.

China’s inflation accelerated in May to a 34-month high of 5.5 percent, while retail sales came in marginally higher than forecast and industrial output was slightly lower.

Although a little above expectations, the inflation data suggested Chinese price rises were not out of control and that growth was being managed.

After the data, China’s central bank increased the ratio of reserves it requires its commercial lenders to hold by another 50 basis points, its sixth increase this year, extending its campaign to tame inflation.

“A measured slowdown in the Chinese economy is just what investors want, with today’s figures providing some hope that this is just what is unfolding,” said Keith Bowman, equity analyst at Hargreaves Lansdown. World stocks as measured by MSCI were up more than half a percent while the pan-European FTSEurofirst 300 gained 0.6 percent.

Earlier, Japan’s Nikkei closed barely changed from the previous day.

 

BUOYANT EURO

Greece’s trials did little to discourage investors from buying the euro, which rose around 0.1 percent against the dollar to $1.4433.

Despite the debt crisis, the single currency has climbed 8 percent against the dollar this year, nearly 7 percent against the yen and 2.5 percent against the pound.

This is primarily due to differing expectations for interest rate rises. The ECB is expected to tighten policy for the second time this year in July while the U.S. economy is struggling, pointing to a continued period of ultra-low interest rates there.

“Clearly the markets are very concerned about the U.S. economy and the U.S. debt situation,” said Greg Gibbs, strategist at RBS. “Those are the key factors preventing what would normally be a bigger (euro) fallout, given the amount of risk around the European situation.”

Yields on core euro zone debt rose slightly with 10-year German Bunds offering 2.98 percent. Greece’s 10-year bond yield climbed 60 basis points to 17.7 percent.

(Additional reporting by Atul Prakash and Neal Armstrong, editing by Mike Peacock, John Stonestreet, Ruth Pitchford)