European Shares Climb After German Vote

Markets Reuters

European stocks and the euro rose on Thursday after Germany's parliament approved new powers for the euro zone's rescue fund, offering some relief from concerns that deep political divisions are hampering efforts to end the region's debt crisis.

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The German parliament backed more powers for the euro zone rescue fund with a large majority in what was Chancellor Angela Merkel's biggest test since she took power six years ago.

A leading conservative lawmaker also said the bill had passed without the need of support from the opposition, easing worries of a rebellion against Merkel within the ruling coalition that could weaken her politically.

The pan-European FTSEurofirst 300 index of top shares was up 0.3 percent at 930.14 points after falling 1.2 percent in the previous session. World stocks as measured by the MSCI index were 0.2 percent higher.

The euro was up 0.6 percent to around $1.3630, having risen to as high as $1.3678 on the news that the bill was passed.

"Beyond this vote nothing has changed and we're awaiting a more comprehensive response from euro zone policymakers," said Lee Hardman, currency analyst at BTM-UFJ. "The relief rally in the euro over the past week has been built on unsustainable foundations."

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MORE HURDLES

Even with the German parliament passing the bill, more hurdles towards an effective solution to the debt crisis remain, with the threat of a Greek default very much on the horizon.

Talks between the European Union, IMF and Athens on the next aid tranche on Thursday will see if Greece has done enough to avoid running out of cash.

Despite the latest bounce, the euro has lost nearly 7 percent against the dollar this quarter, hammered by mounting worries over the prospect of a Greek default and constant bickering by European policy-makers over the response to the crisis.

The failure to find a definitive solution to the crisis has led to worries about a contagion engulfing bigger euro zone economies like Italy and Spain. Besides, it has triggered concerns about the health of the European banking system.

The German Bund future briefly fell after the vote in a volatile trading session but was last little changed on the day at 135.66.

"I think it's overly optimistic to think that the whole crisis is over and therefore the safe-haven status of the Bund is lost. I wouldn't expect to see the Bund yield much higher than where we are in the short term," said Elisabeth Afseth, fixed income analyst at Evolution Securities.

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