Euro rallies against dollar after Spain debt sale

By JUERGEN BAETZ Associated Press Writer

BERLIN (AP) - The euro rose sharply against the dollar Thursday after a closely watched auction of Spanish bond was oversubscribed, easing worries about the country's debt problems.

The currency bought $1.2392 in European trading, up from $1.2271 early in the day before the debt auction and $1.2314 in New York late Wednesday.

Spain successfully raised nearly euro3.5 billion ($4.3 billion) in an auction of 10- and 30-year treasury bonds, although at high interest rates.

That helped allay some recent questions about Spain's financial stability, fueled by the country's high debt and rumors about a shaky banking system.

The Spanish Treasury sold euro3 billion in 10-year bonds at an average interest rate 4.86 percent, up from 4.045 percent in the last auction in May. It also sold euro479 million in 30-year bonds at an average interest rate of 5.9 percent, up from 4.8 percent in March. The auctions were oversubscribed 1.89 and 2.45 times, respectively.

"Overall, all the elements point at a good result," said Chiara Cremonesi, an analyst with UniCredit in London.

The result is "reassuring, especially given that Spain has been under the spotlight over the last few days due to reported strains in its banking system and its bleak fiscal outlook," she wrote in a research note.

The currency used by the 16 eurozone nations gained this week from four-year lows below $1.19 last week after positive economic data and a rise in global stock markets seemed to reassure investors.

In Brussels, the 27 leaders from all of the European Union members gathered to discuss the bloc's economic policy.

At the beginning of the meeting, EU president Herman Van Rompuy called on the heads of states and governments to tackle long-term problems with their economies and overhaul budget rules to prevent the repeat of a damaging debt crisis.

The British Pound also rose Thursday, to $1.4816 from $1.4793 on Wednesday in New York. The dollar slipped to 91.31 Japanese Yen, down from 91.40 Japanese yen.