TOPWRAP 4-China boosts euro, Spain wins austerity vote

* Euro rebounds after China affirms fx diversification goal

* Spanish government wins cliffhanger vote on austerity

* Geithner says U.S., Europe agree broadly on regulation

* Schaeuble cites U.S., EU criticism of short-selling ban

(Adds Geithner/Schaeuble quotes, Kuwait report)

By Simon Rabinovitch and Glenn Somerville

BEIJING/BERLIN, May 27 (BestGrowthStock) – The euro rebounded on
Thursday after China reaffirmed its long-term strategy of
diversifying currency holdings away from the dollar and denied
it was reviewing its holdings of euro sovereign bonds.

Spain’s minority socialist government won parliamentary
backing for its austerity programme by a single vote in a drive
to cut its budget deficit and regain market confidence dented by
a euro zone debt crisis that began in Greece. [ID:nMDT009061]

U.S. Treasury Secretary Timothy Geithner said after talks in
Berlin on financial regulation and the euro crisis that the
United States and Europe broadly agreed on the need for controls
on risk taking but should ensure they do not impede recovery.

The People’s Bank of China said in a statement that a
Financial Times report that the State Administration of Foreign
Exchange (SAFE) was concerned about its exposure to euro zone
debt was groundless. [ID:nTOE64Q04P]

The central bank said Europe would remain one of China’s
main investment markets and Beijing would support actions to
help the European Union resolve its debt crisis.

The 16-nation single currency, which has lost more than 8
percent against the dollar this month, rose more than 1 percent
after falling to a day low of $1.2154 on the FT report.

European stocks (.FTEU3: ) also rose by nearly 2 percent after
a 3 percent jump on Wednesday and U.S. stock futures pointed to
a firmer start for Wall Street.

A Chinese government official earlier told Reuters Beijing’s
policy of diversifying its $2.4 trillion foreign exchange
reserves “will not change”, soothing nervy markets.

The Kuwait Investment Authority also denied a media report
that the Gulf oil producer’s sovereign wealth fund was reducing
its exposure to the euro zone, saying there was no change to its
long-term investment strategy in Europe. [ID:nLDE64Q1LF]

Geithner took his campaign for coordinated action to calm
markets to Germany, the key player that stunned investors last
week with its ban on some speculative trades.

After talks with German Finance Minister Wolfgang Schaeuble,
he played down differences on financial regulation, telling a
joint news conference: “I think we all agree we want more
conservative restraints on capital and leverage.”

But regulation must be designed carefully so that it “makes
the system more stable in the future but doesn’t create a risk
of financial headwinds to the recovery we are seeing happening”.

Schaeuble acknowledged that Washington and European partners
were critical of Berlin’s ban on naked short-selling of euro
sovereign bonds, credit default swaps and some financial shares.


Graphic on Greek bailout:

Graphic on the euro zone:

For related news stories: [ID:nLDE64I0RB]

Reuters Insider; China should look beyond FX volatility



Geithner held dinner talks with European Central Bank
President Jean-Claude Trichet in Frankfurt on Wednesday and has
also met ECB governing council member Axel Weber, head of
Germany’s powerful Bundesbank and a fiscal and monetary hawk.

Weber has long warned of long-term pitfalls of extraordinary
steps taken to fight the crisis and distanced himself from the
ECB’s move to buy government bonds and support a $1 trillion
emergency euro zone/IMF plan to stabilise markets.

Washington has grown increasingly concerned that the effects
of the Greek fiscal blow-out could spread well beyond Europe,
with banks prone to a similar confidence crisis that roiled
world markets during the 2007-2009 financial crisis.

Germany, Europe’s biggest economy and its main paymaster,
holds the key to any successful EU-wide action.

Its initial reluctance to bail out Athens was blamed for the
EU’s slow response once Greece’s debt blow-out began morphing
into a crisis of confidence in the euro zone as a whole.

But Geithner avoided any public criticism of Berlin’s crisis
management, saying he had enormous respect and confidence in
German stewardship in meeting financial challenges.

Berlin blames speculators for aggravating the debt crisis
with aggressive bets against the euro, but its short-selling ban
was seen as largely symbolic because most of the targeted trades
took place outside of Germany’s jurisdiction.

Yet despite criticism, it looks determined to push through
with the clampdown. A finance ministry document showed this week
it was even considering widening the ban. [ID:nLDE64P123]


Berlin signed off on a 110 billion euro Greek rescue and the
$1 trillion emergency scheme only in return for pledges of
drastic spending cuts from potential beneficiaries.

Greece, Portugal, Spain and Italy have all agreed to push
through multi-billion euro savings despite fierce opposition
from trade unions and sometimes violent street protests.

Spanish Prime Minister Jose Luis Rodriguez Zapatero owed his
wafer-thin victory on a two-year 15 billion euro ($18.42
billion) deficit-cutting plan to the abstention of Catalan
nationalist lawmakers, underlining his precarious position.

Spanish trade unions were meeting to consider protest action
over the planned public sector wage cuts, pension freeze and
civil service hiring restrictions.

Elsewhere in the euro zone, French unions were staging a day
of action against government proposals, still to be spelled out
in detail, to increase the retirement age. [ID:nLDE64Q0G4]

Italian Prime Minister Silvio Berlusconi sought to support
the euro with a vigorous defence of his government’s 25 billion
euro ($30.65 billion) austerity package, approved by his cabinet
in an emergency decree. [ID:nLDE64P1HB]

“The sacrifices required are indispensable to save the
euro,” Berlusconi said. “For years, Italy — like many countries
in Europe — lived above its means. We are all in the same

Stock Market Basics

(Additional reporting by Aileen Wang in Beijing; Writing by
Paul Taylor and Tomasz Janowski; Editing by Mike Peacock)

TOPWRAP 4-China boosts euro, Spain wins austerity vote