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World stocks, euro rise as debt worries ease

LONDON - World markets rose and the euro strengthened Monday in the wake of the announcement of a eurozone aid plan for Greece, which the debt-ridden country followed up by planning a new bond issue.

LONDON - World markets rose and the euro strengthened Monday in the wake of the announcement of a eurozone aid plan for Greece, which the debt-ridden country followed up by planning a new bond issue.

The 16-country common currency has been the main beneficiary of the deal announced at an EU summit last week, with stocks gains more modest and Greek borrowing rates slow to show a rapid improvement.

The euro was at $1.3495 in European morning trade Monday, up from $1.3401 late Friday in New York. On Thursday it had hit a 10-month low below $1.33.

Britain's FTSE 100 benchmark index was up 0.4 per cent at 5,725.97, Germany's DAX rose 0.7 per cent to 6,163.78 and France's CAC-40 up 0.5 per cent at 4,008.70.

After gains in Asia, Wall Street was also expected to gain on the open. Dow industrials futures were up 0.3 per cent at 10,850.00 while Standard & Poor's 500 futures gained 0.6 per cent at 1,169.80.

"Last week's agreement on an aid package to Greece helped return a semblance of confidence to markets and the euro," said Mitul Kotecha, analyst at Credit Agricole CIB.

He warned, however, that the plan does not signal the all clear, noting that Portugal - another country with troubled finances - saw a downgrade.

"Further austerity measures, fiscal issues in other EU countries - as reflected in Portugal's ratings downgrade - and the negative impact on growth that all of this implies, suggest that Europe and the euro will be plagued by various problems for some time yet," he said.

The aid plan for Greece entails bilateral loans from willing eurozone nations - with part of it from the International Monetary Fund - but only as a last resort, if Greece is unable to raise money on markets. No money is being made available to Greece now, and analysts warn that because the bailout loans would come at market rates, the effectiveness of such a plan is unclear.

Such details were not lost on investors, who remained skeptical of Greek debt as an investment.

The interest rate gap, or spread, between Greek 10-year bonds and equivalent German issues - a key indicator of market trust - hovered at 306 basis points Monday morning, almost unchanged from the 305 basis points on Friday. The spread narrowed from 330 points in the wake of Thursday's aid announcement, but is still too high for Greece to raise cash over the longer term.

Greece said Monday that it will issue 7-year bonds, but declined to give a size for the offering or a precise date. It needs to raise about euro20 billion ($27 billion) by the end of April and the interest rate negotiated will be crucial. Borrowing at higher rates will keep its finances under strain, neutralizing any positive effects from its painful spending cuts.

Meanwhile, economic indicators were mostly positive in Europe, with a European Commission survey showing business and consumer confidence improved in March, suggesting the recovery has not yet stalled.

In Asia, stock markets mostly rose as stronger earnings from Chinese companies helped buoy sentiment.

Chinese shares led the region after mega lender China Construction Bank and refiner Sinopec reported robust profits for 2009, supporting optimism about the world's third-largest economy and an engine for part of Asia's growth since the recession.

The Shanghai index jumped 2 per cent to 3,122.15 and Hong Kong's Hang Seng rose 0.8 per cent to 21,217.44. Markets in Taiwan, Australia and India also gained.

Japanese and South Korean markets were modestly lower. Japan's benchmark Nikkei 225 stock average was down 0.3 per cent at 10,963.78. Japan's government said retail sales were higher for the second month in a row in February, rising 4.2 per cent. In January, sales were up 2.3 per cent.

But sales at larger retailers, including supermarkets and department stores, fell during the month.

The dollar rose to 92.51 yen from 92.35 yen.

The benchmark oil contract rose 78 cents to $80.78 a barrel.