Global Markets Technical Report (European Markets)

European shares rally ahead of Spanish debt auction

Europe's top shares gained on Thursday as Spain prepared to test investors appetite for risk at its auction of two- and 10-year bonds, while CaixaBank underperformed after its first-quarter profit plunged.
The FTSEurofirst 300 index of top European shares added 7.42 points, or 0.7 percent to 1,053.60 by 0709 GMT, having pared Tuesday's sharp gains in the previous session.
Investors will watch Spain's bond yields nervously as the debt auction comes the day after the country revealed that banks' bad loans surged to their highest since October 1994 in February. Spanish stocks were up 0.8 percent, having slipped 4 percent on Wednesday.
Gerry Celaya, chief strategist at Red Tower Research, said he expects the Spanish bond auction to be well supported but sees bond yields creeping above 6 percent in the longer-term as appetite for the debt fades, which will cause bond yields in other shaky peripherals such as Italy to drift higher.
He said the rising bond yields will have a further negative impact on the stocks and forecasts Germany's Dax index, which has enjoyed a 14 percent rise at the start of 2012, to close around 14 percent below its current level of 6,779.
While Europe's top shares pushed higher early on Thursday, Spanish bank CaixaBank fell 0.5 percent after revealing the pressure its business is under from the austere economic conditions in Europe.
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