Euro Rising on German Economic Data

By Richard Hubbard

February 14, 2012 8:09 AM EST

(REUTERS) -- The euro rose to a session high and shares reversed early losses after key German data bolstered hopes that Europe's largest economy was recovering and a strong Italian bond sale added to signs that financing pressures were being contained.

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Those factors revived sentiment after a raft of euro zone credit downgrades and warnings on the AAA ratings of France, Britain and Austria from Moody's, which hit European markets early on.

U.S. stock index futures pointed to Wall Street extending Monday's gains with U.S. retail sales data for January expected to support the growing confidence that growth in the world's top economy was improving.

Germany's ZEW Indicator of Economic Sentiment suggested the recovery, which slowed at the end of last year, is back on track there and that analysts are less fearful now about the impact of the euro zone's debt crisis on the growth outlook.

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"The economic weakness at the turn of the year is starting to look more and more like it was just a mere dent," said Rainer Sartoris, an analyst at HSBC Trinkaus. "The economy is stabilizing."

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Italy sold 6 billion euros ($7.9 billion) of new bonds due in November 2014. Yield fell to their lowest level since March 2011, adding to impressions that the risk aversion prompted by the Moody's downgrade announced late Monday was overdone.

"All in all, a good auction for Italy," Annalisa Piazza, market economist at Newedge Strategy in London, said.

"This is a sign that the government's efforts to make significant changes in the Italian economy are actually 'buying' confidence amongst investors."

The FTSEurofirst 300 index .FTEU3 gained about 0.2 percent to 1,074.16 points, having traded in the red early in the day, largely in response to the Moody's warnings and downgrades to Italy, Portugal, Spain, Slovakia, Slovenia and Malta.

The euro, which had fallen to a session low of $1.3127 on the Moody's announcement, rose to $1.3205 from around $1.3185 before the release of the ZEW survey and the Italian bond auction results.

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German ZEW economic sentiment: link.reuters.com/cag54s

Euro zone credit ratings: r.reuters.com/pyh48r

Euro zone debt crisis in graphics (package): r.reuters.com/hyb65p

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