LONDON — Markets roared ahead Monday as the momentum that has marked 2013 re-established itself amid early indications that the center-left will be able to form a government in Italy.
Early polls out of Italy show that the coalition led by Pier Luigi Bersani has claimed the most votes in the election. Bersani has promised to meet current targets and pursue more economic reforms.
If the polls are correct, then the center-left coalition should be in a position to form a government, possibly in conjunction with Mario Monti, the former technocratic premier who has been widely credited in the markets for dousing the country's debt crisis in the past year.
Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., said that prospect was "probably the most market-friendly outcome."
Italian stocks, already sharply higher, pushed further ahead, to trade up 3.4 percent, while the yield on the country's 10-year bond dropped 0.21 percentage points to 4.18 percent. That is around 3 percentage points down from about a year ago, when concerns about the country's debt were at their height.
The advance wasn't just confined to Italy. Germany's DAX was up 2.2 percent at 7,831 while the CAC-40 in France was 1.7 percent higher at 3,768. The FTSE 100 index of leading British shares rose 0.7 percent to 6,380 despite last Friday's downgrade of the country's credit rating by Moody's.
The euro was buoyant too, trading 0.4 percent higher at $1.3270.
Italy's stability is hugely important for the future of the euro currency. Of the 17 European Union countries that use the euro, it has the second-highest debt burden as a proportion of its annual gross domestic product. Only Greece's is higher.
Considered to be too big to bail out, its future in the single currency bloc, at least as far as markets are concerned, is to enact economic reforms and tight budgetary controls. Monti's government was supported in the markets even though he personally saw his popularity falter amid recession and rising unemployment.
"If Italy is to stay out of the eurozone crisis permanently, decisive action to solve the country's long-standing economic problems will need to be taken quickly," said Ben May, European economist at Capital Economics.
Full results are not expected until late Monday at the earliest and it wouldn't take much movement from the opinion polls for a solid government majority to turn into a fragile one — a scenario that could trigger renewed concerns in the markets.
A convincing victory by conservative candidate Nicos Anastasiades in Cyprus' presidential election also helped ease concerns over the future of the euro. Cyprus uses the euro and has struggled to agree a bailout deal with international creditors. Anastasiades indicated he would pursue a deal soon.
U.S. stocks also opened solidly, with the Dow Jones industrial average up 0.5 percent at 14,067 soon after the open and the broader S&P 500 index up 0.5 percent to 1,523. Both indexes are near five-year highs.
It's a particularly busy week on the U.S. economic news front, which could go a long way to determining whether the Dow Jones index strikes a new record high.
Investors are awaiting a raft of data as well as remarks from Federal Reserve chairman Ben Bernanke. Last week, the minutes from the Fed's last policy meeting showed concern over the central bank's monetary stimulus, stoking jitters in the markets. Meanwhile, lawmakers in Congress are also grappling over the budget again.
Monday's rebound started in Asia, with Japanese stocks surging on reports the prime minister's pick for central bank governor will be a strong advocate of loose monetary policy aimed at reviving the moribund economy.
The Nikkei 225 surged 2.4 percent to end at 11,662.52 while the yen dropped further against the dollar after local news outlets reported that Prime Minister Shinzo Abe was preparing to nominate Haruhiko Kuroda as the next governor of the Bank of Japan.
Since the Asian session, the yen has recovered and the dollar was trading 0.3 percent lower at 94.08 yen. Earlier it had risen to 94.76 yen and near two and a half year highs.
Over the past few weeks, the yen has fallen by around 20 percent and that's helped the Nikkei gain around 30 percent.
Elsewhere in Asia, Hong Kong's Hang Seng rose 0.2 percent to close at 22,820.08 while South Korea's Kospi ended 0.5 percent lower at 2,009.52.
In mainland China, the Shanghai Composite Index climbed 0.5 percent to close at 2,325.82 and the smaller Shenzhen Composite Index ended 0.8 percent higher at 955.79.
Oil prices tracked equities higher with the benchmark New York rate up 48 cents at $93.61 a barrel.
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