Market Review - 19/01/2012 21:09 All times in GMT

Euro climbs to 2-week high on strong demand at Spanish debt auction

The single currency climbed to a 2-week high against the dollar on Thursday as Spain sold more than its maximum target at an auction, boosting optimism the region’s sovereign-debt crisis is being contained.

Although the single currency rose one tick above last Friday's 1.2879 high to 1.2880 in Asia, euro weakened to an intra-day low at 1.2839 in European morning. However, euro rallied to 1.2936 after the strong demand at Spain's bond auction eased concerns about contagion within the eurozone. Later, euro pared its gains and briefly retreated to 1.2875 in New York morning before climbing to a session high at 1.2972 in late New York session on cross-buying against the Japanese yen and on continued optimism about Europe.

Spain sold 6.61 billion euros of debt due in 2016, 2019 and 2022, exceeding the maximum target of 4.5 billion euros set for the auctions.

French borrowing costs declined as the nation sold 7.97 billion euros of medium and long-term securities.

Although the British pound dropped to an intra-day low at 1.5415 in European morning, cable climbed to 1.5488 in New York morning on increased risk appetite and edged marginally higher to a session high at 1.5495 in late New York trade.

Versus the Japanese yen, although the greenback weakened to an intra-day low at 76.70 in European morning, dollar rallied to a 2-week high at 77.32 in New York morning on broad-based selling of the yen before stabilising at 77.15 near New York close.

In other news, the draft treaty for establishing the ESM states 'coming lending capacity of eurozone temporary n permanent bailout funds EFSF/ESM remains 500 billlion euros; 500 billion euro lending capacity of EFSF/ESM is a minimum; ESM board of governors may decide to raise combined EFSF/ESM lending limit; ESM treaty will enter into force when countries representing 90% of subscribed capital ratify it; a eurozone country can only apply for ESM help if it started ratification of fiscal compact treaty.'

Earlier, ECB's Executive Board Member Joerg Asmussen said 'monetary policy cannot be overburdened, responsibility for fighting bet crisis with gov't; ECB's bond buying programme cannot last forever.' ECB President Mario Draghi said 'EU did fantastic progress in improving fundamentals in many countries in recent months; Europe will be in better shape in 2012, but downward risks significant.'

On the data front, U.S. initial jobless claims were reported at 352K, lower than a forecast of 385K and a previous revised figure of 402K and Philadelphia Fed survey was reported at 7.3, market consensus of 10.0. Real earnings were better-than-expected at 0.5%, forecast was 0.2%.

Data to be released on Friday:

Australia import price, export price, Japan leading indicators,Germany PPI, UK retail sales, Canada CPI, U.S. existing home sales.