PARIS — Spain sold debt Thursday in an auction that met with strong investor demand despite questions about the country's bailout plans, as a report suggested the contraction of the 17-nation euro zone economy is accelerating.
The Spanish Treasury sold 4.8 billion euros, or $6.2 billion, of three- and 10-year bonds, more than the 4.5 billion euros it had targeted for sale. The ten-year bonds were priced to yield 5.666 percent, well below the 6.647 percent it received at a similar auction on Aug. 2.
The lower yields suggests that investors are more comfortable holding Spanish debt. Euro zone fears have abated markedly since Sept. 6, when Mario Draghi, the president of the European Central Bank, said the E.C.B. was prepared to buy Spanish and Italian government bonds in "unlimited" quantities, if necessary, to end the pressure on the 17-nation currency bloc.
The complication for Spain is that the government of Prime Minister Mariano Rajoy wants to avoid the strings that E.C.B. help would inevitably entail. He said last week that the falling yields might make such help unnecessary.
Spain has also been promised up to 100 billion euros in aid for restructuring its banking sector. Mr. Rajoy has said those loans should be made directly to the banks, rather than through the Spanish government, so as to avoid an increase in metrics of sovereign debt. That aid will not be forthcoming until questions about a new banking supervisory system for the euro zone are answered.
After the auction Thursday, Spanish 10-year bonds were trading to yield 5.665 percent, while Italian 10-years were at 4.957 percent.
Spain's main problems — a stumbling economy and a brutally broken labor market — have been compounded by fears of a euro breakup and capital flight from its troubled banks. The country appears unlikely to get any short-term help from a pickup in the economy, a survey of purchasing managers in the euro zone showed Thursday.
Markit Economics, a research firm, said its composite output index for the euro zone fell to 45.9 in September, from from 46.3 in August, the 12th time in 13 months that activity has declined, "with the rate of decline accelerating slightly to reach the fastest since June 2009."
"The falls in production and new orders were widespread across the single currency area," Markit said, though it noted that Germany — the largest euro zone economy — had held up fairly well, even as France - the second largest — faltered.
The fall in the index is "another reminder that the E.C.B.'s new asset purchase program is not an answer to all of the region's problems," Ben May, an economist with Capital Economics in London, wrote in a note, adding that "the euro zone recession looks set to deepen in the latter part of the year."
Markit's broad gauge of German business activity rose in September to a five-month high of 49.7, up from a reading of 47.0 in August.
While a reading below 50.0 suggests economic activity is stagnating, the purchasing managers data showed "a modest expansion of service sector activity broadly offset a continued reduction in manufacturing production," Markit said.
Chris Williamson, an economist at Markit, said the data suggested that the euro zone's July-September quarter had been the worst in three years, with the data "consistent with G.D.P. contracting by 0.6 percent in the third quarter and sending the region back into a technical recession."
News of the E.C.B.'s newfound willingness to tackle surging sovereign borrowing costs had failed to raise business sentiment, he said, with the increasingly gloomy global outlook weighing on sentiment.
Earlier Thursday, a purchasing managers survey from HSBC suggested that China's manufacturing sector continued to slow in September for an eleventh-straight month, and Japan said its exports to Europe and Asia were faltering.
In midday trading the Euro Stoxx 50, a barometer of euro zone blue chips, was down 0.84 percent, and the FTSE 100-stock index in London was down 0.55 percent. Asian shares were broadly lower.
The euro was at $1.2940, down from $1.3070 late Wednesday in New York.
By DAVID JOLLY 20 Sep, 2012
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Source: http://www.nytimes.com/2012/09/21/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss
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