Markets: Well Fancy That, A Rebound, But Don’t Trust Europe

Be careful and don't take the sharp rebound in markets for granted or think it's the sudden emergence of an uptrend.

It isn't, it has the smell of another sucker's rally because the European situation remains very volatile: talk of new political will in the EU is just hot air.

We've been hearing that for 18 months or more and the hole is deeper and blacker, despite hundreds of billions of euros of aid, commitment and losses (in fact trillions of euros of losses if you count the impact of the past week or so).

Asian stocks gained sharply yesterday on reports that European countries were considering new plans to support eurozone members struggling with debt.

And markets in Europe and the uS followed suit. Gains of 4% to nearly 6% in Europe, with Paris up 5.7% and London 4%.

In the US the Dow, S&P 500 and the Nasdaq all gained, but not as strongly as the rises in Europe and Asia with rises of around 1% or a little bit more.

In fact the US rebound started to weaken in the last hour and the day's gains were cut in half with the Dow's 147 point rise less than half its 300 point peak during the session.

Recovering from 52-week closing lows on Monday, Japan's Nikkei Stock Average ended up 2.8%, while the South Korean Kospi jumped 4.9%, and the ASX 200 index in Australia climbed 3.6%.

Hong Kong's Hang Seng Index rose 3.2% and Shanghai's Composite Index was up 1%.

Comex gold for December delivery was up $US56.80 or 3.55% at $US1,651.40 an ounce, and December silver added $US2.09 or 7% to trade at $US32.07 an ounce.

WTI oil in New York rose $US4 barrel to $US84.30, a gain of 5% on the day.

The Aussie dollar jumped more than 2 US cents yesterday to end 98.77 US cents in Australia, up from 96.47 cents late Monday here.

It rose past 99 US in overnight trade to end around 99.30 USc this morning and within sight of parity.

There's speculation the European Central Bank will cut its key cash rate when it meets next week, and that a plan may also be revealed to help shore up the finances of struggling members of the region.

That plan would reportedly include a large increase in the funds available for lending via the European Financial Stability Fund (EFSF), as well as a large injection of capital into selected European banks.

Media reports in various countries say that the EFSF would be able to inject new capital into banks and purchase bonds of distressed governments on the open market, lowering borrowing costs and giving capitals more time to implement reforms

"European politicians appear willing at last to prepare for the inevitable and put measures in place to limit the contagion from a Greek default," said Julian Jessop at Capital Economics said in a quote in Marketwatch.

But as soon as tonight, there's a big hurdle.

Although six parliaments have approved the measures, Finland - one of the eurozone's six triple A rated members - is to vote tonight, our time, and a 'yes' vote is not certain.

In fact opposition is at a very high level and the Finns tried to force the Greeks into giving them separate collateral as part of a bailout.

Then it's Germany's turn on Thursday night, our time, where Chancellor, Angela Merkel, has the support of opposition parties but faces a revolt from within her own coalition group.

Then there is Slovakia, where political opposition is strongest. If Slovakia fails to approve the deal, it may not be fatal but is likely to increase calls from other nations sceptical about the proposal and looking for ways to opt out.

And can Spain and Italy really vote for the proposal if they are a huge part of the current problem and will get billions of euros of support if there is further pressures on their bonds and banks?

Of course, it's Europe where conflicts of interest are rife and go unchallenged.

So a cautious eye is needed and watch what European politicians and groups like the ECB do, rather than what they say or leak to the media to settle market angst.

Already there's talk that germany and six other countries want private bondholders to lose more in the second Greek bailout, a movie that will hit banks and confidence once more.

And watch out for further delays to the payment of the 8 billion euro tranche to Greece under last year's bailout. It's late already and was due to be paid this week, now it could be paid in two weeks as doubts remain about the spending cuts Athens is supposed to be doing.

In Australia the ASX 200 was up 140.7 points, or 3.6%, at 4004.6, its biggest one-day gain since late November 2008.

The All Ordinaries index jumped 135.9 points, or 3.5%, to 4063.5.