Euro Sees Gains As Markets Greet Spain Deal

The euro has made gains against the dollar and the yen as markets react to the eurozone deal aimed at shoring up Spain's troubled banks.

In early Asian trading on Monday the euro bought $1.2647 and 100.73 yen, up from $1.2514 and 99.49 yen in New York on Friday.

The Nikkei index at the Tokyo Stock Exchange rose 1.7% in early trading.

On Saturday, eurozone ministers agreed to lend Madrid up to 100bn euros ($125bn; £80bn) to help its banks.

Spanish PM Mariano Rajoy hailed the decision as a victory for the single currency.

Correspondents say markets are reacting positively as the loan was larger than expected and has helped remove uncertainty over the crisis.

It could also buy time for EU policymakers to work with other weak economies threatening the future of the 17-nation bloc, analysts say.
 

Recession

Spain's weakest banks were left with billions of euros worth of bad loans following the collapse of a property boom and the recession that followed.

The exact amount that Spain will receive will be decided after the completion of two audits of its banks, due within a few days.

On Sunday, Mr Rajoy said that the rescue would speed up the flow of credit loans to families, to small and medium enterprises and to self-employed workers.

He said the real winner was "the credibility of the euro".

But he warned that the near future looked bleak, pointing out that the economy - in its second recession in three years - was still expected to shrink by 1.7% this year.

"This year is going to be a bad one," he said.

The loan to Spain was welcomed by the International Monetary Fund (IMF) as well as the US and Japan.

EU economic affairs commissioner Olli Rehn said the deal was a clear signal to the markets that the euro area was ready to take decisive action to calm markets and contain contagion.

Spain is the eurozone's fourth-biggest economy - twice the size combined of those of Greece, Ireland and Portugal, the countries bailed out so far.

However, tensions over the euro remain high with another election to be held in Greece next weekend.

If voters elect a government that refuses to abide by the terms of the country's bailout deal, Athens faces a possible exit from the bloc.

There are fears that a Greek exit could trigger a run on the banks - not only there but in other eurozone countries.

Greece has been in recession for five years, crippled by huge debts, high unemployment and labour unrest.