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FTSE rallies on hopes for eurozone debt solution

Miners Kazakhmys (KAZ.L), Vedanta Resources (VED.L) and Fresnillo (FRES.L) lead the market higher.

 
FTSE rallies on hopes for eurozone debt solution

Britain’s FTSE 100 followed stock markets in Asia and the US higher on Tuesday morning, amid hopes that eurozone officials would find a solution to the region’s debt crisis.

The UK index of blue-chip shares increased 1.97%, or 101 points, to 5,190, and the Mid-250 index rose 1.65%, or 164 points, to 10,005.

Miners made a turnaround, leading the market higher: shares in Kazakhmys (KAZ.L) increased 52.5p to £8.35, Vedanta Resources (VED.L) gained 75p to £11.45 and Fresnillo (FRES.L) rose £1.04 to £16.28. 

Investors are looking to policymakers for a fix to the eurozone's debt crisis. Possible solutions being discussed in Europe include allowing a 50% Greek default, quadrupling the European Financial Stability Fund (EFSF) to €2 trillion to protect creditors from such a default, and recapitalising European banks.

Gary Jenkins, head of fixed income research at Evolution Securities, said: ‘From a glass half full perspective the idea of allowing Greece to default on an orderly basis whilst at the same time ensuring that there is plenty of liquidity available for the banking sector (and capital provision if required) whilst the wagons are circled around the likes of Italy and Spain to ensure that they receive the necessary funding sounds very sensible.

‘From a glass half empty perspective I wonder just how probable it is that the EU will be able to implement such measures.’

European markets were also buoyed by speculation that the European Central Bank (ECB) could cut interest rates, which currently stand at 1.5%, by 50 basis points.

Stock markets in Europe rose: Germany’s DAX index jumped 2.79% to 5,187, France's CAC 40 index gained 2.53% to 2,931, and the FTSEurofirst 300 index of top European shares increased 2.27% to 917.

Investors will be looking on later today when the Greek government will unveil a number of fiscal measures and vote on an all-important property tax that could give the country another chance to meet its repayments.

The yield – or implied interest rate – on benchmark 10-year Italian government bonds eased off slightly, but at 5.57% is still dangerously close to levels believed to be unsustainable. Meanwhile, the euro fell 0.07% versus the dollar to $1.351.

Asian markets also rallied on hopes of a solution to the eurozone debt woes; Japan's Nikkei 225 index gained 2.0%, to hit 8,542.7.

On Wall Street the Dow Jones Industrial Average jumped 2.5%, or 272.4 points, to close at 11,043.9, while the NASDAQ gained 1.4%, or 33.5 points, to settle at 2,516.7 and S&P 500 climbed 2.3% or 26.5 points to end at 1,163.0.

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