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Euro heads higher after Spanish vote

Monday, October 22 12:01:32

The euro edged higher today as an election victory for Spanish Prime Minister Mariano Rajoy in his home region was seen as clearing one obstacle to Madrid seeking international aid.

But slow progress towards a banking union across the 17-member euro area and worries about agreement over a common budget for the whole European Union limited the gains.

"Now (Rajoy) has the support of his region perhaps he'll feel confident to actually press forward and ask for a bailout, said Fiona Cincotta, City Index market strategist.

Cincotta said markets had been patient in the run up to the weekend election in Galicia, which had been seen as a referendum on the Spanish government's handling of the euro zone crisis, and will want to see action on a bailout request soon.

Spanish 10-year bond yields crept up 2.4 basis points in the wake of the election result to be at 5.41 percent, having fallen around half a point last week after the country retained its investment grade rating.

German 10-year bond yields, which would be expected to fall if tensions in the euro area had eased, were stable at 1.60 percent.

A bailout request from Spain is needed to trigger the European Central Bank's new bond buying programme which the markets see as being able to draw a line under the threat facing the euro zone's fourth-largest economy.

The euro was up 0.1 percent at $1.3032 from a low of $1.3013 hit on Friday, but the range of problems still facing the single currency area kept the gains in check.

European Union leaders face at least two months of tough bargaining on money, power and the future governance of the euro zone before they can convince investors that the threat to the single currency has faded. (C ) Reuters