Euro increases on ECB bond update

Some analysts expect the ECB to announce more bond buying later

Asian shares have risen strongly on expectations that the European Central Bank (ECB) will step up its purchase of European government bonds.

The move would help ease concerns about the high debt levels of a number of eurozone countries, and Japan’s main Nikkei index ended trading up 1.8%.

It followed Wall Street’s Dow Jones index closing up 2.3% overnight.

Some analysts expect the ECB to announce later that it is expanding its bond-buying programme.

They predict an announcement following the conclusion of the ECB’s latest rate-setting meeting.

So far it has spent 67bn euros (£56bn; $88bn) on purchasing government bonds.

Global investor sentiment has also been cheered by reports that the US government is prepared to see more International Monetary Fund money be used to help indebted eurozone countries.

The euro was steady at $1.3105 in early Thursday trading, following its biggest one-day rise in more than a month on Wednesday.

Following the Republic of Ireland’s bail-out, eurozone debt concerns have moved on to Portugal.

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Prime Minister Jose Socrates insisted on Wednesday that the country did not need bailing out. What the economy needed, he said, was “confidence”.

In a radio interview he added: “I do not see any reason to change the position of the Portuguese government which is very clear: we do not need any help, what we need is confidence in the Portuguese economy.”

However, BBC business editor Robert Peston said Portuguese officials had told him it was now “not a question of if there will be a bail-out, but when”.

Mr Socrates’ comments came on the same day as the Portuguese government carried out a successful bond auction.

Yet while the 500m euros sale was two and a half times over-subscribed, the yield Lisbon had to offer investors rose sharply, indicating declining confidence in country’s finances.

The yield rose to 5.3%, which our editor said was “hugely expensive” for one-year bonds.

Bonds are effectively loans, in this case made by investors to governments.

The higher the yield of a bond at auction, the riskier investors think that loan is, so the government has to offer them a higher rate of return to ensure it attracts enough buyers.

The previous release of one-year Portuguese bonds had a lower yield of 4.8%.

Our business editor also questioned how many of the government bonds were bought by Portuguese banks funded by the European Central Bank.

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