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Euro sees gains as markets greet Spain deal The euro and Asian markets gain after Spain banks deal
(about 1 hour later)
The euro has made gains against the dollar and the yen as markets react to the eurozone deal aimed at shoring up Spain's troubled banks. The euro and stock markets have gained in Asia after a deal to shore up Spain's troubled banks eased concerns about a European currency break up.
In early Asian trading on Monday the euro bought $1.2671 and 100.73 yen, up from $1.2514 and 99.49 yen in New York on Friday. In Asian trade, the euro rose 1% versus the US dollar and Japanese yen. Stock indexes in Japan and Hong Kong rose 2%.
Japan's, Hong Kong's and South Korea's main indexes all rose about 2%. On Saturday, Eurozone ministers agreed to lend Spain up to 100bn euros ($125bn; £80bn) to help its banks.
On Saturday, eurozone ministers agreed to lend Madrid up to 100bn euros ($125bn; £80bn) to help its banks. Analysts said the deal would buy time for policymakers to solve other problems facing the 17-nation eurozone.
Spanish PM Mariano Rajoy hailed the decision as a victory for the single currency. The biggest issue now looming on the horizon are the 17 June elections in Greece, and the worry that an anti-eurozone party may end up in a position of power.
Correspondents say markets are reacting positively as the loan was larger than expected and has helped remove uncertainty over the crisis. "All eyes are still on Greece's upcoming elections but investors' worries over the eurozone have eased in the short term," said Andy Du of Orient Futures Derivatives.
It could also buy time for EU policymakers to work with other weak economies threatening the future of the 17-nation bloc, analysts say. According to Stephen Davies of Javelin Wealth Management, the fact that the Spanish banking bailout was bigger than many people had expected pointed to a continuing "degree of strain within the European banking system".
However, Stephen Davies from Javelin Wealth Management points out that it also shows "the degree of strain within the European banking system". "It reflects the fairly dire straits within which Europe continues to find itself," he added.
"It reflects the fairly dire strait within which Europe continues to find itself," he said.
RecessionRecession
Spain's weakest banks were left with billions of euros worth of bad loans following the collapse of a property boom and the recession that followed. Spain's weakest banks were left with billions of euros of bad loans following the collapse of a property boom and the recession that followed.
The exact amount that Spain will receive will be decided after the completion of two audits of its banks, due within a few days. Currently Spain is in its second recession in three years and the economy is expected to shrink by 1.7% this year.
On Sunday, Mr Rajoy said that the rescue would speed up the flow of credit loans to families, to small and medium enterprises and to self-employed workers. Its economic problems have become so acute, and its borrowing costs in the international markets so high, that there have been concerns that the government would not be able to service its debts.
He said the real winner was "the credibility of the euro". At the same time, there were fears that some of its banks would not be able to find enough capital to continue to operate.
But he warned that the near future looked bleak, pointing out that the economy - in its second recession in three years - was still expected to shrink by 1.7% this year. The exact amount of emergency funding that Spain will receive will be decided after two audits of its banks are completed within the next few days.
"This year is going to be a bad one," he said. Spain's loan was welcomed by the International Monetary Fund (IMF) as well as the US and Japan.
The loan to Spain was welcomed by the International Monetary Fund (IMF) as well as the US and Japan. Spanish Prime Minister Mariano Rajoy hailed the decision as a victory for the single currency.
EU economic affairs commissioner Olli Rehn said the deal was a clear signal to the markets that the euro area was ready to take decisive action to calm markets and contain contagion. European Union economic affairs commissioner Olli Rehn said the deal was a clear signal to the markets that the euro area was ready to take decisive action to calm markets and contain contagion.
Spain is the eurozone's fourth-biggest economy - twice the size combined of those of Greece, Ireland and Portugal, the countries bailed out so far.Spain is the eurozone's fourth-biggest economy - twice the size combined of those of Greece, Ireland and Portugal, the countries bailed out so far.
Volatility ahead?
However, tensions over the euro remain high with another election to be held in Greece next weekend.However, tensions over the euro remain high with another election to be held in Greece next weekend.
If voters elect a government that refuses to abide by the terms of the country's bailout deal, Athens faces a possible exit from the bloc.If voters elect a government that refuses to abide by the terms of the country's bailout deal, Athens faces a possible exit from the bloc.
There are fears that a Greek exit could trigger a run on the banks - not only there but in other eurozone countries. Analysts said that in the days leading up to the election it was likely that a low-risk appetite from investors would return.
"The Greek election result is going to be critical," said Mr Davies from Javelin Wealth Management.
There are fears that a Greek exit could trigger a run on the banks, not only there but in other eurozone countries.
Greece has been in recession for five years, crippled by huge debts, high unemployment and labour unrest.Greece has been in recession for five years, crippled by huge debts, high unemployment and labour unrest.