December 8, 2023

New Spanish Budget Free of Austerity Measures

The budget is based on a forecast that the Spanish economy will grow 0.7 percent next year, up from the government’s previous forecast of 0.5 percent. Gross domestic product is expected to contract 1.3 percent this year.

Calling it a “budget of economic recovery,” Cristóbal Montoro, the budget minister, forecast that the proposal would “open the door to job creation in our country” since it lacked the tax increases and heavy spending cuts of recent years.

The government also forecast that the unemployment rate would fall to 25.9 percent in 2014, down from the record 27 percent that it reached in the first quarter of this year.

As part of its belt-tightening, the government has extended a salary freeze for civil servants for a fourth consecutive year. And on Friday, it approved changes to the pension system intended to save about 800 million euros ($1.08 billion) next year.

Having requested a bailout for its suffering banks in June of last year, the Spanish government has been under pressure to stick to its budgetary commitments, even as it faced frequent street protests against a series of spending cuts and tax increases.

Given the depth of Spain’s recession, the European Commission agreed last May to give Madrid more time to reach its budgetary targets. The Spanish deficit is expected to fall to 6.5 percent of gross domestic product this year. That would be down from a revised deficit of 6.8 percent of G.D.P. last year, which was 0.2 percentage points less than what Madrid had initially estimated. For 2014, the target is for a deficit of 5.8 percent of G.D.P.

One of the most significant turnarounds for Spain has been the recent fall in its borrowing costs as investors shifted the spotlight to Italy’s political fragility and the perceived risk that Italy poses for the euro zone. The interest rate premium demanded by investors for buying Spanish government bonds rather than Germany’s benchmark bonds fell this month below that of Italy for the first time since March of last year.

Thanks to that improvement, Mr. Montoro said, the cost of financing the country’s debt should fall 5.2 percent next year, to 36.6 billion euros.

While Spain is emerging from a two-year recession, Prime Minister Mariano Rajoy and his ministers have recently cautioned that the country still faced a significant economic challenge, with continued weakness in consumer spending and a reluctance by banks to provide credit.

The 2014 budget and the proposed changes to the way pension payments are calculated will now need to go to Parliament for a vote, but that is expected to be a formality as Mr. Rajoy’s Popular Party holds an absolute majority.

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Greece Beats Budget Targets So Far This Year

ATHENS, Greece — Greece is beating its budget targets by a wide margin so far this year, preliminary figures showed Monday, although the country is still deep in recession.

Deputy Finance Minister Christos Staikouras said the state budget was estimated to have had a primary surplus — which excludes interest payments on outstanding debt — of 2.6 billion ($3.5 billion) euros for the January-July period.

That is a far better result than its target of a 3.1 billion euro ($4.2 billion) deficit, and marks the first time the government has logged a significant primary surplus.

The actual deficit, including interest payments, came in at 1.9 billion euros, also better than the targeted 7.5 billion euros deficit, the finance ministry’s figures showed. In the same period last year, the country posted a 13.2 billion-euro deficit.

The deficit now stands at 1 percent of gross domestic product, from 6.8 percent in the same period last year, Staikouras said.

Greece has depended on international rescue loans since 2010. In return, it has pledged to overhaul its economy, and has imposed repeated waves of austerity measures. It has reduced spending across the board, including cuts to state salaries and pensions, and increased taxes.

The improvements in the budget this year were achieved by a combination of cutting spending and increased revenues in some taxes.

It was also helped by a one-off payment of about 1.5 billion euros from other European central banks. The money came from Greek government bonds that the European Central Bank had bought earlier during the financial crisis. Rather than keep the money accrued on the bonds, the ECB handed it down to the 17 national central banks in the eurozone, who in turn gave it to the Greek government.

Despite the improvements, however, the economy remains mired in the sixth year of a deep recession that has seen Greece’s economy shrink by about a quarter. Figures released by the statistical authority Monday show economic output shrank by 4.6 percent in the second quarter of 2013, compared with the same three months last year. The figures were not seasonally adjusted.

Separately, the country also completed the sale of a 33 percent stake in its gambling monopoly, OPAP, to a Czech-Greek investment fund, Emma Delta. The sale is part of an ambitious but long delayed privatization program that is part of the country’s bailout conditions.

Greece sold the stake in OPAP for 654 million euros ($874.59 million), the country’s asset development fund said in an announcement.

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European Markets Slump on Political Crises

PARIS — Global stocks fell and oil rose above $100 a barrel on Wednesday, as concern about the political crises in Egypt and Portugal added to traders’ growing grab-bag of anxieties.

Egypt was at the center of geopolitical concern after President Mohamed Morsi on Tuesday night defied an army ultimatum that he resign, raising the risk that the country would descend into bloodshed and chaos.

“Egypt’s not a major oil producer compared with Libya next door,” said Damian Kennaby, director of research for oil market services at IHS Cambridge Energy Research Associates in London. “But there’s a whole lot of ‘what if’ going on right now, and that’s being built into the oil price.” Egypt produced 728,000 barrels of oil a day on average last year, while Libya produced about 1.5 million, according to figures from BP.

In afternoon trading, American crude oil for August delivery was trading at $100.93 a barrel in Europe, up 1.3 percent, its first time above $100 in nine months.

The Euro Stoxx 50 of euro zone blue chips was down 1.8 percent. In London, the FTSE 100 index fell 1.6 percent. On Wall Street, the Standard Poor’s 500-stock index was down 0.3 percent at the start of trading.

In a worrying reminder that the euro zone crisis is not over, Portuguese stocks slumped 5 percent, and the price of Portuguese 10-year government bonds also fell, pushing the yield past 8 percent, its first time at that level since last November, before easing.

In Lisbon, Prime Minister Passos Coelho was struggling to overcome the turmoil in his government that has led both his finance minister and foreign minister to resign within a matter of days amid opposition to crushing austerity policies.

Portugal’s tottering coalition government could collapse amid calls for new elections, potentially ushering in a long period of uncertainty about economic policy in a country that is still under the tutelage of the International Monetary Fund and European Union following its bailout in 2011.

“The situation in Portugal is worrying,” Reuters quoted Jeroen Dijsselbloem, the Dutch finance minister and leader of the Eurogroup of euro zone finance ministers, as saying Wednesday. “I assume the political situation in Portugal will stabilize and that Portugal will stay committed to the undertakings that are part of its program.”

European banking stocks fell after Standard Poor’s cut credit ratings on some of the biggest lenders in the sector. Barclays, which was cut to A from A+, fell 2.9 percent. Deutsche Bank, also cut to A from A+, fell 2.8 percent. Credit Suisse, cut to A- from A, fell 3.8 percent.

Market volatility has returned after a period of calm amid signs of slowing in the Chinese economy, an engine of global growth. A government survey of purchasing managers Wednesday showed activity in the services sector slipping to a 53.9 in June from 54.3 in May, the lowest in nine months. A separate report from Markit Economics and HSBC showed activity firming slightly in June at 51.3, up from 51.2 in May.

Indications from the Federal Reserve in Washington that it might soon begin tapering down its quantitative easing policy has also unsettled investors, setting off a rout in bonds that has erased tens of billions of dollars of value.

Earlier on Wednesday, Asian stock markets closed down moderately.

Stanley Reed contributed reporting from London.

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High & Low Finance: Don’t Be Alarmed, It’s Just the Economy About to Accelerate

The American markets are getting worried again. But this time the fear is refreshingly different.

The worry is that economic growth may be about to accelerate.

After five years of a disappointing economy, such a concern sounds too good to be true, and perhaps it is. But imagine what will happen if it is not. We’ve been complaining for years about how slow the recovery is. It would be great if it sped up appreciably.

But you might not know that if you listened to some of the commentary these days. Those who see a black cloud behind every silver lining can point to plenty of negatives in a good economy. Bond investors will lose money as the value of long-term bonds declines. That will mean that a lot of people are poorer. Banks own a lot of Treasuries, and some of them could suffer as the value of those bonds decline.

Perhaps rising interest rates will prompt a sell-off in the stock market. Perhaps they will choke off the recovery in the housing market.

The federal government will suffer a hit from having to pay higher interest rates as it borrows money. The Federal Reserve, which has bought a lot of long-term government bonds and mortgage securities, will lose money — perhaps a lot of it — as it sells those securities at lower prices than it paid. It might lose so much money that it stops funneling profits to the Treasury, further damaging the government’s fiscal position.

Added to those specifics is the feeling that we are about to enter unprecedented territory. Just as the Fed never before engaged in quantitative easing, it has never before unwound the positions. Who knows if it can handle the challenge?

“The Federal Reserve will need to carefully navigate through the completion of quantitative easing,” the Organization for Economic Cooperation and Development said this week in its generally gloomy semiannual global economic forecast. “A premature exit could jeopardize the fragile recovery, but waiting too long could result in a disorderly exit from the program with sizable financial losses.”

Of course, we’ve all known that — someday — the Fed would have to start reducing its positions. But on Wall Street, someday can seem a very long way off. “This was supposed to be next year’s trade,” a hedge fund manager told me this week.

What made it seem like this year’s trade was the sudden backup in the bond market that began early in May and accelerated late in the month after the Fed’s chairman, Ben S. Bernanke, mused that the Fed might be able to start to backing off the easing program later this year. The yield on 10-year Treasuries, below 1.7 percent early this month, rose above 2.1 percent on Tuesday.

That may not sound like a lot, but to owners of such bonds, it is a problem. If they bought at the latest auction of 10-year Treasuries, on May 8, the value of their securities fell enough in three weeks to offset more than a year of income.

That latest drop came on the heels of some surprisingly good economic news, as well an upbeat forecast. Last week, the Federal Reserve Bank of New York said it expected the unemployment rate, now 7.5 percent, to fall to 6.5 percent by late next year. That is earlier than the Fed had expected when it said 6.5 percent was the level at which it might choose to back away from quantitative easing,

Then this week the Standard Poor’s Case-Shiller home price index was reported to have leapt 10.9 percent over the year through March. That was the largest gain since 2006, when the housing bubble was in full expansion. And on the same day that was reported, the Conference Board said consumer confidence was at a five-year high.

There are reasons to restrain enthusiasm about both figures, though. Home prices hit their lows for the cycle in March 2012, so this is a bounce off the bottom. And while consumer confidence is up, it is still well below the levels that seemed acceptable before the financial crisis. During the decade before the economy began to crater in 2008, there were only two months — in 2003 — when the index was as low as it is now. And not all statistics are surprising on the upside; first-quarter gross domestic product was revised a bit lower in the latest estimate, released Thursday.

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Japan Initiates a Bold Bid to End Falling Prices

TOKYO — In its first policy steps under its new governor, Haruhiko Kuroda, the Bank of Japan announced Thursday it would seek to double the amount of money in circulation over two years, initiating a bold bid to end years of falling prices and dispelling market fears that Mr. Kuroda might fail to follow up his recent tough talk with concrete action.

The central bank said it would aggressively buy longer-term bonds and double its holdings of government bonds in two years, in effect doubling the money in circulation in the process. The bank will aim for a robust 2 percent rate of inflation “at the earliest possible time,” it said.

“This is monetary easing in an entirely new dimension,” Mr. Kuroda said following the bank’s decision.

The dramatic turn in Japanese monetary policy could open up a new chapter in the country’s economic history, for years defined by what critics said was a halfhearted battle to end deflation — the damaging fall in prices, profits and wages that has weighed on its economic growth.

The Japanese stock market reacted enthusiastically, with the Nikkei 225-share index finishing the day 2.2 percent higher.

Prime Minister Shinzo Abe, who took office in late December, has made beating deflation a central facet of his economic policy, and has already arm-wrestled the bank into committing to a target of 2 percent inflation.

So relentless was that pressure that the bank’s previous governor, the moderate Masaaki Shirakawa, resigned weeks before the end of his term, giving way to Mr. Kuroda, who shares Mr. Abe’s monetary fervor.

Mr. Kuroda emphasized the break with history, repeatedly pointing to a graph showing the planned jump in the country’s money supply as he answered reporters’ questions on the bank’s new policies.

“Incremental steps of the kind we’ve seen so far weren’t going to get us out of deflation,” Mr. Kuroda said. “I’m certain we have now adapted all policies we can think of to meet the 2 percent price target,” he said.

And if prices did not rise as expected, he “would not hesitate” to step up the bank’s easing program, Mr. Kuroda said. That represent a sea change from his predecessors, who were faulted for being too ready to pull back at the first sign of higher prices for fear of runaway inflation.

The Japanese financial markets appeared to give a collective sigh of relief, with their rise in recent months seemingly justified by Mr. Kuroda’s strong positioning. Japanese stocks have soared in anticipation of a reversal in monetary policy under Mr. Abe, fanned higher by recent assurances from Mr. Kuroda that he would do “whatever it takes” to defeat deflation.

But in recent days, the stock market had pulled back as jittery investors wondered whether Mr. Kuroda could make good on his promises. Shortly after the bank’s announcement, the benchmark Nikkei index jumped from negative territory. The yen weakened to ¥95.40 to the dollar early evening in Tokyo from about ¥93 before the announcement.

“Kuroda did it,” Masaaki Kanno, an economist at JPMorgan Securities Japan, said in a note to clients. “This is a historical change in the B.O.J.’s policy..”

In a statement detailing the new measures, the central bank said it would buy longer-term government bonds, lengthening the average maturity of its holdings to seven years from three years and expanding Japan’s monetary base to ¥270 trillion by March 2015. Under that plan, the bank will buy ¥7 trillion of bonds each month, equivalent to over 1 percent of its gross domestic product — almost twice the pace of the U.S. Federal Reserve.

The policies are part of a new asset purchase framework that focuses on the monetary base instead of the overnight interest rate, which has remained close to zero for years doing little to increase prices or otherwise help the real economy. The bank will also consolidate all its purchases in a single operation in an attempt to improve transparency of the bank’s purchases.

Mr. Kuroda said that the bank would suspend a longstanding rule that limits its bondholdings to the amount of money in circulation — and he pointed out that limit had already been surpassed.

Some economists caution that the central bank’s huge purchases of government debt could eventually be seen by investors as enabling runaway public spending, quashing confidence that Japan will ever pare down its already sky-high public debt and driving up long-term interest rates. If Japan recklessly pursued aggressive monetary and fiscal policies, “the long-term interest rate could rise and fiscal collapse would ensue,” warned Ryutaro Kono, a Japan economist at BNP Paribas.

Others argue that rising prices, once stoked, could be hard to control, a warning rooted in Japan’s “bubble economy” of the 1980s, and its subsequent painful collapse.

Some experts also question whether monetary policy alone can end deflation in Japan, which suffers from other deflationary pressures, like a shrinking and aging population, and cumbersome regulations that make the economy inefficient. They charge that despite the easy money already available in Japan, lending has not increased dramatically because businesses and consumers see little potential for growth.

Mr. Kuroda said that risks or doubts should not hold the central bank back from fighting deflation. “We have debated the side effects, but we are currently not concerned that long-term interest rates might spike, or conversely, that there would be an asset bubble,” Mr. Kuroda said. “That risks exist should not hold us back from pursuing much-needed monetary easing. We will keep in mind those risks, but push ahead.”

He also said that once Japan had fought off deflation and reignited its economy, lending would surely follow, spurring more economic growth in a virtuous cycle. “We are already seeing an improvement in sentiment among consumers and companies,” he said. “As the economy expands and prices rise, lending will also grow.”

Mr. Kuroda acknowledged that Japan’s new monetary push is weakening the yen, which bolsters Japan’s exporters at the expense of overseas rivals — a sticking point between Tokyo and its trading partners. But he declined to comment further, saying currencies were beyond his mandate as central bank governor.

Government officials welcomed the bank’s decision. “The bold monetary easing steps go beyond expectations,” Economy Minister Akira Amari said. “The Bank of Japan is finally steering Japan toward rising prices.”

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German Central Bank Doubles Reserves

The Bundesbank said it raised its risk provisions, money it sets aside to cover losses such as a default on euro zone bond holdings, to 14.4 billion euros, or $18.7 billion, from 7.7 billion euros a year earlier. The bank’s profit for the year, which it transfers to the German government, was little changed, rising to 664 million euros from 643 million euros.

Jens Weidmann, the Bundesbank president, said the increase in loss reserves “takes appropriate account of the risks on the Bundesbank’s balance sheet.”

But the decision to set aside further billions may also be interpreted as a verdict by Mr. Weidmann on the European Central Bank’s measures he has long criticized, such as purchases of Italian and Greek government bonds to try to keep those countries’ borrowing costs under control.

Mr. Weidmann, a member of the European bank’s governing council, has played the role of Cassandra as Mario Draghi, the  bank’s president, has led a vast expansion of the central bank’s powers.

Fears the euro zone will crumble have receded since Mr. Draghi promised last year to buy bonds of troubled euro zone countries to contain their borrowing costs. But Mr. Weidmann has often complained that the E.C.B. has gone too far, endangering its independence from political leaders and its mandate to guard price stability above all else.

On Tuesday Mr. Weidmann repeated his contention that the best solution to the euro zone crisis is for countries to get government spending under control and improve the performance of their economies. He said that relative calm on financial markets was due not only to bank policy, but also to progress by political leaders.

“The reduction of tension on financial markets should by no means lead to neglect of the necessary structural reforms,” Mr. Weidmann said in a statement.

The Bundesbank decision to bolster its reserves may also reinforce fears among Germans that their money is at risk because of European bank policies designed to keep the euro zone from falling apart. The Bundesbank is one of Germany’s most respected institutions, widely regarded as a bulwark against less prudent members of the euro zone.

Since 2010 the E.C.B. has acquired bonds from troubled euro zone countries valued at 209 billion euros, with Italian government bonds accounting for nearly half of that amount. In an attempt to encourage lending to businesses and consumers, the E.C.B. has also vastly expanded the collateral that commercial banks can post in return for cheap central bank loans.

The 17 national central banks in the euro zone, which carry out much of the work involved in running a currency union, would share the losses if a country were to default on its bonds or if collateral posted by a bank were to lose value.

Among Germans, there is widespread fear that Germany would bear much more than its share of the cost if the euro zone fell apart. The Bundesbank acts as the clearinghouse for large transactions in the currency zone, and other central banks have what amount to large overdrafts.

At a press conference to present the Bundesbank’s annual results, Mr. Weidmann repeated warnings that France was slipping behind because of its failure to make economic reforms. But he acknowledged that E.C.B. policies had not yet led to an increase in inflation.

“In the short term, we in the euro area have, if anything, declining inflation risks,” he said. Mr. Weidmann also said the German economy was in good shape.

The Bundesbank, like other central banks in the euro zone, continues to do much of the day-to-day work of the euro zone, including making sure there is enough money in circulation, storing gold reserves and acting as go-between for large payments between commercial banks.

Its activities generate interest income, which totaled 11 billon euros last year, up from 8.6 billion euros in 2011. The Bundesbank’s profit, however, has plunged 90 percent since the financial crisis began in 2008, as the bank set aside ever larger sums to cover risk.

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A Year of Market Gains, Despite Political Turmoil

A year ago, some thought 2012 was destined to be the year that the euro zone — and maybe even the entire European Union — broke up. The banks that supported their governments, and that in turn depended on those same governments for bailouts if they went broke, were deemed to be particularly vulnerable to disaster.

It did not happen, and while the euro zone countries hardly solved their economic problems, the Continent’s stock markets turned out to be good investments in 2012, with bank shares among the best performers. The same could be said about the United States, where the broad stock market posted double-digit gains and Bank of America shares doubled in 2012, albeit from a very depressed level.

Over all, the Standard Poor’s Euro 350-stock index was up 13 percent for the year, measured in euros, and more than 15 percent measured in dollars. The S. P. 500 wound up the year with a gain of 13 percent.

It may have been typical of 2012 that it was politicians and central bankers — not economic news or corporate developments — that dominated investor attention. As the year ended, the difference was that it was Washington, not Europe, where the squabbles were taking place.

For much of the year, it appeared that the European squabbles were leading nowhere, and by midsummer, markets were pessimistic about the outcome. Finally, Mario Draghi, the president of the European Central Bank, took decisive action to assure that the banks — and the governments that depended on them — would have access to funds. That did not turn around recessionary conditions in much of the euro zone, but it was enough to turn around financial markets. Prices of government bonds in many of the most troubled countries began to rise. Those who bet that Europe would solve its problems did well in the financial markets.

The accompanying charts show the performance of stocks in 10 economic sectors in both Europe and the United States, both in 2012 and since Oct. 9, 2007, the day that world stock markets peaked before what would turn out to be a world recession and credit crisis.

What stands out is how well financial stocks and consumer discretionary stocks did during 2012. The latter stocks are things purchased by consumers that are likely to do better when the economy is improving. In the United States, the two best such stocks in the S. P. 500 were PulteGroup, a homebuilder, and Whirlpool, an appliance maker.

But while Europe did better in 2012, it remains much farther from recovering all of the losses experienced since the 2007 peak. The American index is just 9 percent lower than that, while the European index is about a third below where it was then. The only sectors that have completely made up their losses on both sides of the Atlantic are health care and consumer staples. In the United States, the consumer discretionary and information technology sectors have also done so, although the latter sector’s performance is largely because of Apple, whose shares are more than three times as high as they were in 2007.

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Stocks and Bonds: Markets Jump in U.S. and Europe on Hopeful Signs

Analysts said the markets were helped by a successful auction of three-month bills in Spain. Also, a report showing improved business sentiment in Germany, Europe’s largest economy, offered a glimmer of hope.

The Dow Jones industrial average turned positive for the month and bank shares were up more than 3 percent. Over all, it was a reversal of the drag on the entire stock market on Monday, when financial stocks fell by more than 2 percent, partly as focus shifted to a warning by the European Central Bank of a perilous year ahead.

But with no stunning news event or resolution to the financial markets’ persistent irritants, some questioned the reasons behind the size of the surge on Tuesday.

“I cannot explain today’s action in the market,” Gary M. Flam, an equity portfolio manager at Bel Air Investment Advisors, said in the final hour of trading. “There has been no news, either positive or negative, to drive a move of this magnitude. I could try to explain it away, but a move of this magnitude is head-scratching.”

At the close, the Dow Jones industrial average was up 337.32 points, or 2.9 percent, at 12,103.58. The Standard Poor’s 500-stock index showed a gain of nearly 3 percent to 1,241.30. The index’s 35.95 point gain was the seventh-best of this year. The Nasdaq composite index was up 80.59 points, or 3.2 percent, at 2,603.73.

As stocks soared, investors left the safety of government bonds. The Treasury’s 10-year note tumbled 1 2/32, to 100 21/32. The yield rose to 1.93 percent, from 1.81 percent late Monday.

Many analysts also noted that wild swings were a predictable feature of the end of the year as managers balanced underperforming elements in their portfolios at a time of low trading volume. And even after an impasse over extending a payroll tax cut was announced Tuesday in Washington, the markets held on to their gains.

“The market just seems to have no memory from one day to the next,” Mr. Flam said. “To drive a move of this magnitude, you would expect there to be some sort of resolution on the bigger-picture issues.”

The sovereign debt crisis in the euro zone and the prospects of sluggish economic growth have ganged up on the financial markets in recent months. But the data has sometimes broken through the gloom, pointing to a recovery that is sluggish but at least is not stalled.

On Tuesday in the United States, government data showed that housing starts in November hit their highest level since April 2010. They reached 685,000, a seasonally adjusted annualized pace surpassing forecasts of 635,000 and up more than 9 percent compared with October. Building permits also exceeded expectations, reaching 681,000, data from the Commerce Department showed.

And a survey released on Tuesday by the Ifo research group in Munich showed that the business climate for trade and industry in Germany, which is Europe’s largest economy, continued to improve in December. “The German economy seems to be successfully countering the downturn in Western Europe,” the report said.

Stanley Nabi, the chief strategist for the Silvercrest Asset Management Group, said that the economic reports in the United States and from Europe showed they were “not doing as badly as expected, and this morning the housing data came out much stronger than expected.”

In addition to recent higher expectations for growth, he said, “all of these things combined have given a measure of comfort” to investors.

The Euro Stoxx 50 index closed 2.7 percent higher. The major indexes were up 3.1 percent in Germany, 2.7 percent in France and 1 percent in Britain. The German 10-year bond rose 8 basis points to yield 1.95 percent.

In the euro zone bond market, where sovereign debt concerns have been overriding, the Spanish auction of three-month bills priced to yield 1.74 percent helped sentiment, an analyst said.

“We are still a long way from a fix to Europe’s problems, but any ease in funding pressures among member economies is certainly a welcomed development,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, referring specifically to Spain.

As the euro rose and the United States dollar retreated about 0.5 percent on its index, energy and materials stocks on the broader market surged nearly 4 percent. Oil prices rose more than 3.5 percent, with crude for January delivery on the New York Mercantile Exchange at $97.35.

Bank of America shares, which closed below $5 on Monday, their lowest point since March 2009, were up 3.7 percent Tuesday at $5.17.

ATT was up more than 1.3 percent to $29.12. It announced after the markets closed on Monday that it would end its bid to acquire T-Mobile USA.

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Successful Spanish Debt Auction

PARIS — Spain’s borrowing costs plummeted Tuesday at a debt auction, helping to lift the euro and stocks, as the European Central Bank began rolling out a new lending program that could encourage banks to buy euro-zone government bonds.

The Spanish Treasury sold €5.6 billion, or $7.3 billion, of debt, more than the €4.5 billion it had planned to sell after it met with solid demand. It sold three-month bills priced to yield 1.74 percent, down from the 5.11 percent it paid to sell similar securities on Nov. 22. It also sold six-month debt securities at an average yield of 2.44 percent, compared with the 5.227 percent it paid in November.

The euro bounced up to $1.3120 Tuesday, from $1.2998 late Monday in New York. U.S. stocks opened higher Tuesday, following major European stock indexes, which rose around 2 percent.

The solid result will come as welcome news for Mariano Rajoy, who will take office Wednesday as prime minister of Spain. Analysts attributed the positive result — as well as a strong Spanish auction last week — partly to the new E.C.B. initiative.

The central bank on Dec. 8 cut its main interest rate target to 1 percent from 1.25 percent, and said it would begin offering banks unlimited loans of up to three years at that rate, from a maximum of one year previously. It also said it would accept a wider range of collateral for those loans.

The program, officially known as a long-term repo operation, “is very important,” Laurent Fransolet, a European rate strategist at Barclays Capital in London, said. “but it’s not easy to understand, so many commentators haven’t been focusing on it.”

Mr. Fransolet cautioned that the main purpose of the operation was not to bolster euro-zone sovereign debt, but rather to ensure banks had the funds to refinance themselves “for a long time.”

The E.C.B.’s new facility does, however, make it possible for banks to borrow from the central bank to fund purchases of government bonds. Using the so-called carry trade, a bank that borrows at 1 percent and buys bonds that yield 4 percent pockets 3 percentage points of yield as income.

The euro-zone credit market has been hurt by the seemingly endless debt crisis
, with the E.C.B. warning Monday
that some indications were showing levels of stress greater than in the immediate aftermath? of the Lehman Brothers collapse of September 2008.

The E.C.B. will announce the results of its three-year liquidity injection on Wednesday morning, and there is wide uncertainty over the degree of demand. In a Reuters poll, traders estimated banks would ask in aggregate for as little as €50 billion to as much as €450 billion.

“Given the ongoing stresses in the banking system, we expect there to be high demand for these loans,” Ben May, an economist in London with Capital Economics, said in a research note. “Nonetheless, we doubt that banks in the region’s most troubled economies will go for broke and purchase vast quantities of their governments’ debt in a bid to bring bond yields down and avoid damaging sovereign defaults.”

The central bank’s policy move “is something very big,” Mr. Fransolet said, but he questioned whether it represented “a complete change of direction” for the euro zone.

“I think you need a lot of other things,” he said. With a huge round of government debt up for refinancing next year, he added, “The jury is still out.”

In a reminder of the sword hanging over the heads of European leaders, Fitch Ratings warned that the AAA rating it has assigned to the debt issued by the euro-zone bailout vehicle, the European Financial Stability Facility, “largely depends on France and Germany retaining their AAA status.”

Fitch noted that its decision last week to revise the outlook for France to “negative” meant that the risk of a downgrade of the bailout fund had also risen.

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DealBook: Credit Agricole to Eliminate Up to 2,300 Jobs

PARIS — Crédit Agricole is planning to cut as many as 2,300 jobs as it scales back to adapt to a changed global environment, a union leader said on Wednesday.

“It’s clear that at least 1,700 jobs will go at the corporate and investment bank,” said Régis Dos Santos, head of the French national banking union, the Syndicat National de la Banque, which learned of the plans from the bank’s management. An additional 600 jobs could be eliminated from the consumer side of the business, he added.

The cuts are a result of the broad fallout from the sovereign debt crisis, which is wreaking havoc from Europe to Wall Street. Like its French rival Société Générale, which is planning to eliminate jobs in New York, Crédit Agricole needs to reduce its balance sheet and exit risky businesses.

American money-market funds have been cutting their exposure to European banks over concerns about the euro, making some dollar-denominated businesses untenable.

On Friday, Moody’s Investors Service downgraded Crédit Agricole, along with Société Générale and BNP Paribas, citing funding problems. The ratings agency also warned that the banks faced further losses on their holdings of Greek and Italian government bonds if the crisis in the euro zone were to deepen.

Mr. Dos Santos said he expected Crédit Agricole to release a statement offering more detail after the close of trading in Paris. Anne-Sophie Gentil, a spokeswoman for the bank, said she was unable to comment.

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