GLOBAL MARKETS-Euro, stocks gain as ECB lending seen positive

Larger Smaller Reset LONDON (Dec 21): European stocks and the euro
firmed on Wednesday, enjoying a brief surge after banks borrowed around
$489 billion euros from the European Central Bank at its first-ever
offer of three-year loans on hopes it will be a significant step toward
easing the region's two-year old debt crisis.

The ECB has
indicated it wants the ultra-cheap, long-term funding to boost trust in
banks, free up money markets and tempt banks to buy Italian and Spanish
debt.

"The very heavy take-up of the ECB's three year long-term
refinancing operation (LTRO) provides some encouragement that banks'
liquidity needs are being amply met," said Jonathan Loynes, chief
European economist at Capital Economics.

"But while this might
help to address recent signs of renewed tensions in credit markets and
support bank lending, we remain sceptical of the idea that the operation
will ease the sovereign debt crisis too," he said.

Traders
polled by Reuters just hours before the operation expected the ECB to
allot 310 billion euros, up from a forecast of 250 billion euros in a
poll on Monday.

MARKETS RALLY

The FTSEurofirst 300 index of leading shares was up around 0.6 percent on the day, pulling back from an initial bounce.

The euro was up 0.2 at $1.3101, after earlier nearing Tuesday's high of
$1.3132. It is well off an 11-month low seen last week of $1.2945.

German government bonds edged down although on low volumes as the holiday season approaches.

Italian 10-year bond yields, which have been falling rose slightly to around 6.7 percent.

Italy's outlook was hurt by news the economy contracted by 0.2 percent
in the third quarter compared to the previous three months due to a
slump in domestic demand. The negative GDP number put the country on
track for what analysts expect will be a prolonged recession.


"We expect this trend to continue in the fourth quarter, when there will
be an even sharper contraction, and also in 2012," said Vladimir
Pillonca economist at Societe Generale.

British consumer morale
hit its lowest in almost three years in December as households' became
much more pessimistic on the outlook for the next 12 months, a survey
from researchers GfK NOP showed.

Gold's rose to a one-week high
on Wednesday on the encouraging economic data from the United States and
Germany, with a weak dollar adding support to prices. Spot gold is
currently up 1.1 per cent to $1,632 an ounce. - Reuters