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Global shares, euro up as outlook bright

Friday, January 25 14:49:53

The euro hit an 11-month high and shares rose today on signs that Europe's financial system is returning to health and the outlook is brightening for Germany, the continent's biggest economy

In the United States mostly solid corporate earnings reports have also set the stage for the S&P 500 index to extend its best winning streak in over six years and close in on its highest level since the financial crisis began.

Sentiment across riskier asset markets rose when the European Central Bank said euro zone banks would repay 137 billion euros in emergency loans early.

By taking back the three-year loans after only one year, the ECB has become the first major central bank to start moving away from unconventional monetary policy measures to tackle the crisis. By contrast, the U.S. Federal Reserve and Bank of Japan are buying bonds to stimulate economic growth.

Altogether, the ECB lent about one trillion euros in late 2011 and early last year to avoid a credit crunch. The scale of the repayment, which beat the average estimate of around 100 billion euros in a Reuters poll, sent the euro higher, pushed German government bond prices down and boosted bank stocks across the euro zone.

"This is more than we had expected and underlines the material improvement in funding conditions for most European banks in the past 12 months," said Michael Symonds, a credit analyst at Daiwa Capital Markets.

The euro hit $1.3461, up 0.5 percent and its highest level since February 2012, to extend the gains which followed the release of data showing the German economy gathering speed again after contracting late last year.

German bond futures fell 40 ticks while two-year Bund yields extended an earlier rise to be up seven basis points at 0.24 percent.

The main Euro STOXX index of euro zone banking shares was up 1.4 percent and back to levels seen in mid-2011.

Before the ECB announcement European equity markets - and German shares in particular - had gained when the Ifo think tank said its business climate index rose in January to its highest level since June 2012.

The German Ifo index followed another business survey on Thursday which suggested Europe's largest economy was set to grow at its fastest pace in a year, although that data also showed France may be heading back into recession.

"Germany is roaring back to growth in the new year," said Berenberg Bank economist Christian Schulz.

Germany's DAX index, home to bellwethers such as Siemens and BMW, hit a five-year high after the Ifo number. It needs to rise only 4 percent more to regain the 2007 peak before the global financial crisis. (C ) Reuters