BUSINESS
03/24/2011 07:59 am ET | Updated May 25, 2011

World Shares Recover All Of Post-Japan Losses

LONDON - Global stocks inched higher on Thursday and are now higher than when Japan's earthquake and tsunami struck, buoyed by confidence that the world economic recovery remains on track.

The euro also recovered early losses to trade a touch higher despite negative signs from banking and politics in Portugal and Spain, the two countries now at the center of Europe's continuing debt crisis.

The single European currency was set for its largest weekly slide since early January, after the Portuguese parliament rejected a series of austerity measures and prime minister Jose Socrates stepped down, although equity markets rallied after gains in the heavyweight mining sector offset losses elsewhere.

"Sentiment is still relatively good. The cycle is good. We are still mildly optimistic on the overall picture," said Joost de Graff, senior portfolio manager at Kempen Capital Manageent in the Netherlands.

Surveys on Thursday showed economic recovery continued in March, shrugging off Japan's disaster, although Middle East tensions are sending prices rocketing and the impact of public sector cutbacks in Europe is a risk.

The MSCI All-Country index .MIW0000PUS was last up 0.1 percent. In Asia, Tokyo's Nikkei .N225 fell 0.2 percent. It remains 8 percent below its close when the earthquake hit on March 11.

EU BAILOUT

Much of the anxiety over the euro zone's debt problems had been soothed by the prospect of a longer-term reinforcement of the EU bailout fund.

But this has now been delayed until June, while Portugal faces what are viewed as unsustainable borrowing costs ahead of multi-billion euro bond repayments in April and June.

The premium investors demand to hold Portuguese debt rather than benchmark German Bunds hit euro-lifetime highs, while the premium to hold other peripheral debt also rose, reflecting the growing preference among bondholders to own higher-rated paper.

"If -- and this is a big if -- there is a bailout for Portugal, the question would be how it would be negotiated with a government in essentially a caretaker mode," said David Forrester, currency strategist at Barclays Capital in Singapore.

The euro was last up 0.1 percent against the dollar at $1.4101, having fallen earlier to a low of $1.4049, while against the yen it was flat at 114.11 yen.

The yen itself was steady against the dollar at 80.95 yen, although market players are still wary Japan may intervene to sell the currency if the dollar breaches 80 yen.

Euro zone government bonds were flat, with Bunds having pared some of their earlier gains to trade at 3.229 percent, while Portuguese 10-year yields rose 11 basis points to 7.931 percent, leaving the premium to Bunds at a euro-lifetime high of 470 basis points.

European Union leaders begin a two-day summit on Thursday but the political turmoil in Portugal and looming elections in other countries are expected to delay any tough decisions to address the region's debt problem.

An official euro zone source estimated in January that if Portugal asked for international aid, it might need between 60 billion to 80 billion euros (up to $113 billion).

European shares edged higher as gains in the mining sector offset some of the weakness in banking stocks, which came under pressure from persistent concern about the euro zone's finance and after Moody's downgraded 30 Spanish banks. .EU

The FTSEurofirst 300 .FTEU3 was up 0.2 percent at 1,113.49 points, while S&P 500 futures rose 0.1 percent, pointing to a modestly higher start on Wall Street later. .EU .N

Brent crude was off 0.2 percent at $115.35, down for a second successive trading day.

Spot gold traded around $1,43999 an ounce, in sight of its record $1,444.40 set earlier in the month.

(Additional reporting by Kirsten Donovan and Harpreet Bhal in London and Alejandro Barbajosa and Alex Richardson in Singapore) (Reporting by Amanda Cooper; editing by Patrick Graham)

Copyright 2011 Thomson Reuters. Click for Restrictions.