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Europe Shares to Open Higher as Spain Deal Reached

CNBC.com with Reuters
Monday, 11 Jun 2012 | 1:40 AM ET

European shares were called to open higher on Monday after euro zone finance ministers agreed to lend Spain up to 100 billion euros ($125 billion) to shore up its crippled banking system on Saturday.

Spain
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Spain

The FTSE was called to open 99 points higher at 5534, the DAX was seen opening 159 points higher at 6290 and the CAC 40 was expected to open 60 points higher at 3112.

In Asia, stocks, commodities and the euro jumped on Monday on news of the deal, relieving markets that had feared for the country's fiscal collapse.

The eurorose nearly 1 percent to $1.26694 on Monday, its highest level since May 23.

The Australian dollar, closely linked to risk appetite, gained as much as 0.9 percent to $1.0005 its highest rate since May 15.

Brent and U.S. light sweet crude futures both rose more than $2, and London copper futures pushed more than 2 percent higher to $7,455 a ton.

Spain said it wanted aid for its banksbut would not specify the precise amount until two independent consultancies—Oliver Wyman and Roland Berger—deliver their assessment of the banking sector's capital needs some time before June 21.

The loan comes on the condition that Spain meets its fiscal targets, and failure to do so would result in the suspension of European Union funds, Spanish newspaper El Pais reported.

On Sunday, Spanish prime minister Mariano Rajoy said the conditions of the EU package were limited to the banking-sector restructuring and wouldn't focus on general government economic policy, because the government had made progress with economic overhauls since it came to power at the end of last year.

Meanwhile, Greece's two main party leaders Sunday used the Spanish bank bailout deal to support their opposing messages to the Greek electorate ahead of next week's national elections.

New Democracy leader Antonis Samaras said the deal showed how important it was for the country to remain inside the European Union, negotiate with its partners over the country's problems and not isolate itself, while the leftist Syriza party said it showed that the only prosperous route for Greece was to reject the terms of the country's own massive bailouts.

Finnish Finance Minister Jutta Urpilainen said on Saturday that Helsinki may demand guarantees in exchange for the aid.

Urpilainen warned that "if the funds are taken from the European Financial Stability Facility, Finland will request guarantees." But if they were taken from the permanent rescue fund, the European Stability Mechanism, Finland will not demand guarantees as it would carry less risks for Finnish taxpayers.

The effect of the euro zone crisis on the global economy was highlighted by British finance minister George Osborne on Sunday who, writing in the Sunday Telegraph, said decisions euro-zone leaders take in the next few months will determine the economic future of the European continent for the next decade and beyond.

Osborne warned the current crisis was "killing off" the UK's economic recovery.

Elsewhere in Europe, French president Francois Hollande was on track for a Socialist-led majority in parliament after a solid win in a first-round vote on Sunday that should free him from having to rely on hard leftists hostile to European integration.

Hollande's Socialist bloc looks likely to win the 289 seats needed for an outright majority in the 577-seat National Assembly in next Sunday's run-off, and almost certain to do so with its Green Party allies, according to exit polls.

Further afield, China's inflation, industrial output and retail sales figuresall fell for a second month in May. A flurry of data over the weekend explained China's surprise cut in interest rates on Thursday—its first since the global financial crisis—by showing the extent of the domestic economy's weakness.

The rate cut followed a number of measures designed to get money flowing back into the economy. Premier Wen Jiabao and other policymakers appeared to be jolted by dire economic figures for April, released a month ago. In recent weeks they have approved languishing investment projects and launched a number of reforms to allow private investment into sectors previously dominated by the state.

A summer battle for orders is underway in the global jet industry, which gathered in Beijing on Sunday for the first of two crucial events in two months, pitting the world's largest aircraft manufacturers against each other in a race for deals worth $50 billion.

The potential deals span all continents and every pattern of powered flight from the largest airliners to warplanes and luxury business jets, shielding aerospace workers from the worst effects of a slowdown spreading from Europe's debt crisis.

The owners of German chemicals firm Evonik may pull the plug on an initial public offering (IPO) which, when announced, was billed as Europe's biggest flotation in more than a year.

"The performance of financial markets since the end of May has added to the uncertainty whether enough proceeds are achievable that reflect the value of Evonik," the RAG Foundation said in a statement on Sunday.

"The certainty of a flotation based on an appropriate valuation of Evonik is a prerequisite of the IPO." RAG owns 75 percent of Evonik, while private equity firm CVC owns 25 percent.

Vodafone could face fresh attacks over its tax affairs after an investigation by The Sunday Times revealed that the mobile phone giant paid no corporation tax in Britain last year.

Despite earning several hundred million pounds from its 19 million British customers, Vodafone shared none of these profits with HM Revenue & Customs (HMRC) in the 12 months to the end of March.

The revelation comes amid heightened scrutiny of the tax bills of multinational companies as governments scramble to patch up their public finances.

And Goldman Sachs is close to a striking a deal with State Street over the sale of its hedge fund administration business, in a move that would create the largest administration services provider to hedge funds worldwide, the Financial Times reported.

The report, citing people familiar with the sale, said the investment bank is in "late stage" discussions with State Street, although no formal agreement has been reached.

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