MORNING REPORT
(7am AEDT)

French President Nicolas Sarkozy has backed down on demands for the European Financial Stability Facility to be able to borrow from the European Central Bank to address the region´s debt crisis. European leaders will meet again on Wednesday evening to finalise a solution to the debt crisis.

Reuters is quoting a senior German source as saying that bankers have offered to stretch a voluntary ´´haircut´´ on Greek debt to 40 per cent.

European shares rose strongly on Friday on hopes of a solution to the region´s debt crisis. The FTSEurofirst index rose by 2.5pct to end 0.2pct higher for the week. The German Dax was up by 3.6pct and the UK FTSE gained 1.9pct.

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US sharemarkets posted strong gains on fell on Friday on hopes that European leaders would come up with solutions to the region´s debt crisis. Shares in McDonalds and Microsoft rose on encouraging earnings results. The Dow Jones rose by 267pts or 2.3pct with the S&P 500 up by 1.9pct and the Nasdaq lifted 38.8pts or 1.5pct. The Dow is now up 2pct over 2011. Over the week the Dow rose by 1.4pct, the S&P 500 rose 1.1pct but the Nasdaq lost 1.1pct, dragged down by Apple´s earnings disappointment.

US long-term treasuries fell on Friday (yields higher) as equities and commodities rallied on hopes for a solution to the Euro debt crisis. US 2yr yields fell by just under 1pt to 0.27pct and US 10yr yields rose by 2pts to 2.216pct. Over the week US 2yr yields rose by 1pt while US 10yr yields rose by 16pts.

Major currencies rose against the US dollar in European and US sessions on Friday. The Euro rose from lows near US$1.3705 to US$1.3900, ending US trade near its highs. The Aussie dollar also rose from around US102.05c to US103.75c, also ending US trade near its highs. And the Japanese yen lifted from 76.75 yen to JPY76.00, ending US trade near JPY76.25.

Global crude oil prices were mixed on Friday. The US Nymex price rose on optimism about Euro debt talks, but the Brent price eased on expectations that Libya would boost output to Europe. Nymex crude oil rose by US$1.33 or 1.5pct to US$87.40 a barrel but London Brent crude fell by US20c to US$109.56 a barrel. Over the week Nymex oil rose by 0.7pct but Brent lost 4.5pct.

Base metal prices rose sharply on Friday. Bargain hunters stepped in on hopes of a resolution to the European debt crisis. Lead rose 7.1pct with copper up 6.2pct and other metals rose 2.0-4.5pct. Over the week metals fell between 0.4pct and 6.6pct, with nickel and tin faring the best. The gold price rose for the first time in five days on Friday, posting gains in line with other commodities. The Comex December gold price rose by US$23.20 an ounce to US$1,636,10. But over the week the gold price fell by US$46.90 or 2.8pct.

Ahead: In Australia, the producer price index is released. In the US no major economic data is scheduled.

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