US data boosts world markets

In Europe,Germany’s DAX was up 11.10 points,or 0.2 percent,at 6,146.80,while France’s CAC-40 was up 5.36 points,or 0.1 percent,at 3,822.35. The FTSE 100 index of leading British shares was closed for a bank holiday.

On Wall Street,the Dow Jones industrial average was up 54.34 points,or 0.5 percent,at 11,062.95 soon after the open while the broader Standard & Poor’s 500 index rose 6.52 points,or 0.6 percent,at 1,193.21.

The strong opening in the U.S. came in the wake of a government report showing personal spending rose at a five-month high of 0.6 percent in March – that’s important because consumer spending accounts for the bulk of U.S. economic activity.

The buoyant opening on Wall Street helped European stocks recoup some lost ground after the weekend agreement by the euro zone and the IMF to offer Greece euro110 billion ($145 billion) over three years to give it some breathing to deal with its massive debts. In return,the country pledged to push through a further euro30 billion of austerity measures through to 2012,cutting wages and pensions and increasing sales taxes.

The Greek Cabinet has accepted the proposals and the euro zone’s governments are looking to formally clear the funds before Greece’s next euro8.5 billion debt repayment on May 19.

German Chancellor Angela Merkel said her country will provide euro22.4 billion ($29.6 billion) to help bail out Greece over a three-year period,part of a wider plan aimed at keeping Greece afloat and protecting their shared euro currency.

French finance minister Christine Lagarde goes later Monday to France’s lower house of parliament to present a budget amendment allowing the government to release funds.

Though the markets expect even this hurdle to be clear,the crisis is far from over. Questions likely to dominate include the ability of the Greek government to push through its severe austerity program given growing opposition on the streets and a recession likely to be caused by measures.

“Implementation risk is high,” Credit Agricole analyst Mitul Kotecha said.

That certainly seems to be a factor on the Athens markets,where the benchmark composite index was trading 0.2 percent lower at 1,867.06.

One of the aims of the package is to prevent the debt crisis spreading to other countries within the euro zone – last week’s decision by Standard & Poor’s to cut its credit ratings on Portugal and Spain proved to be the catalyst to finally get the Germans behind a more comprehensive Greek bailout package.

So-called contagion around the euro zone raised questions about the future of the euro currency – Merkel said the bailout of Greece was the “only possibility we have to ensure the stability of the euro.”

The jury is out,though,on whether the package can ensure stability for the euro over the medium-term,especially as questions about the institutional framework remain unresolved following four months of indecision – by late morning London time,the euro was down 0.8 percent at $1.3230.

“The damage done to the market in the last few weeks will likely leave its mark and this will be reflected in greater skepticism than would have been otherwise from market participants about the potential success of the deal,” said Jacques Cailloux,chief euro-zone economist at Royal Bank of Scotland.

“Markets will likely focus on the implementation risks surrounding the program,ranging from the approval procedures of the tranches to the response of the population to the new austerity measures,” Cailloux added.

A further element of the response to the Greek debt crisis that has raised eyebrows in the markets is the European Central Bank’s decision to suspend its rating limits on Greek debt until further notice.

In a statement Monday,the central bank for the 16 countries that use the euro said the suspension of the minimum credit rating includes all existing and new debt instruments “issued or guaranteed by the Greek government.”

That means that Greek debt can be used as collateral in ECB lending operations despite its poor credit ratings. Last week,Standard & Poor’s cut its rating on Greece to junk status,raising market fears that if the other two leading agencies Moody’s and Fitch did the same,then Greek debt would have been ineligible.

Cailloux think that the decision by the bank puts it “one step closer to the nuclear option” – the actual purchase of Greek bonds in the markets by the bank in the name of maintaining financial stability.

Cailloux thinks the purchase of government bonds by the ECB is “technically possible” and would probably be “the only response that would have a long lasting and decisive impact on the market” especially as it would support liquidity in the secondary market over the coming two years when Greece is not expected to tap investors.

Wall Street was poised to open modestly higher later,with Dow futures up 18 points,or 0.2 percent,at 10,978 and the broader Standard & Poor’s 500 futures rising 3 points,or 0.3 percent,to 1,186.40.

Earlier in Asia,Hong Kong’s Hang Seng index led the retreat,falling 297.23 points,or 1.4 percent,to 20,811.36 while South Korea’s benchmark dropped 1.2 percent to 1,721.21.

Trading volumes were light in Asia as the two biggest markets,Japan and China,were closed for holidays. Markets in Thailand and the Philippines were also closed.

Investors will be interested to see how markets respond Tuesday to the decision by the People’s Bank of China to raise the deposit reserve requirement ratio for most banks by half a percentage point,starting May 10. This is the third time this year that the central bank has raised the deposit reserve minimum in an effort to curb inflation and surging property prices.