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BW Businessworld

European Markets Recover After Spain Downgrade

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European shares and the euro held roughly steady on Friday as hopes of progress towards a solution to the euro zone's debt crisis was tempered by a knee-jerk reaction to a credit rating downgrade for Spain.

G20 finance chiefs and central banks heads from the world's biggest economies meet in Paris on Friday in search for a solution to a deepening crisis that has fanned fears of a global recession.

Financial markets have been more buoyant since a pledge by French and German leaders to come up with a comprehensive plan for ending two years of turmoil by an Oct 23 summit.

The euro dipped overnight on the move by Standard and Poor's to cut Spain by one notch, although that only brought its rating into line with rival agency Fitch and the single currency was still on track for its best weekly gain in nine months.

"We see a lot of optimism in the market, there are a lot of promises to develop a global, sustainable solution to the European debt crisis. We saw overnight when Spain was downgraded, there was no lasting impact on euro/dollar," said Lutz Karpowitz, currency analyst at Commerzbank.

Europe's FTSEurofirst 300 dipped 0.1 per cent, though Spain's benchmark underperformed, down 1 per cent.

World stocks measured by the MSCI All-Country World Index slipped 0.1 per cent. The index is up 3.9 per cent this week, heading for its best weekly gain in more than three months though it is still down 10 per cent this year.

Copper rose 2.3 per cent after tamer inflation figures from top metal consumer China, while Brent crude added 0.2 per cent to trade above $111 a barrel and was set for its best weekly rise since early July.

Gold was also in demand, up 0.4 per cent and heading for its biggest weekly gain in more than a month.