Market Review - 20/12/2011 22:24 All times in GMT

Euro rises after Spanish debt auction and German business climate

The single currency rallied against the greenback on Tuesday after a strong Spanish debt auction and an improved Germany business climate boosted risk appetite.

Although euro traded narrowly in Asia, price rallied strongly in Europe after Spanish short-term borrowing costs fell sharply along with an unexpected increase in German business confidence eased concerns about the eurozone debt crisis. The single currency climbed to session high of 1.3132 in New York morning. Later, euro retreated to 1.3063 on profit-taking before stabilising at around 1.3080 near New York closing.

Spain sold 3.72 billion euros of 3-month bills at an average yield of 1.735% vs 5.110% at previous auction and sold 1.92 billion euros of 6-month bills with an average yield of 2.435% vs 5.227% at previous auction.

Germany's Ifo business climate index rose to 107.2 in Dec from 106.6, forecast 106.1.

The British pound rose strongly to a session high in New York morning at 1.5700 on improved risk appetite and as UK CBI distributive trade rose in December. However, cable retreated to 1.5651 in New York afternoon before stabilising ahead of New York closing.

Versus the yen, the greenback edged up to an intra-day high at 78.06 in Asian morning before falling briefly to a session low at 77.72 in New York morning on improved risk appetite. However, dollar pared losses and rose to 77.90 near New York closing.

In other news, Ifo's Klaus Abberger said 'domestic situation in German is still good, see no danger of recession at moment.' BoE Governor Mervyn King said 'Financial Policy Committee needs proper powers to deal with financial risk.'

On the data front, German Ifo current condition was unchanged at 116.7 vs an expected fall to 116.0. U.K. CBI distributive trade rose to +9 in December from -19, median forecast -13. U.S. housing start in November were up 9.3% to 0.685M from a revised 0.627M, 0.635M forecast. Building permits rose 5.7% from 0.644M to 0.681M.

Data to be released Wednesday:

New Zealand current account, Japan trade balance, export, import, BoJ rate decision, UK MPC vote hike, vote unchanged, vote cut, PS net borrowing, U.S. existing home sales.