* Irish risk premium rises after Moody's cuts rating
* Euro lifted by German business sentiment
* Weaker dollar boosts commodities
By Dominic Lau
LONDON, Dec 17 (Reuters) - World stocks advanced on Friday,
partly lifted by firmer commodities as the dollar fell, while
Irish and Portuguese bond yields rose after Moody's Investors
Service cut Ireland's rating by five notches.
The euro, however, rose against the dollar after German
business morale rose to its strongest level since 1991 in
December, boosted by an increasingly strong domestic sector that
is helping the economy power ahead of weaker euro zone peers.
The cut put Ireland's debt rating at Baa1, the third last
investment grade rank, and the ratings agency warned further
downgrades could follow if Dublin was unable to stabilise its
debt situation. []
There was little comfort for markets from a European Union
summit that agreed on Thursday to create a permanent financial
safety net from 2013 but provided no new measures to deal with
the immediate crisis.
Ireland's debt levels have quadrupled since late 2007 on the
back of a banking sector meltdown, and it needs solid economic
growth to ensure it can meet repayments and fiscal targets set
down in the 85 billion euros EU/IMF bailout agreed last month.
"The Irish downgrade was significant and severe," said Nick
Stamenkovic, bond strategist at RIA Capital Markets in
Edinburgh.
Last week, Fitch Ratings became the first ratings agency to
strip Ireland of its "A" credit status, cutting it by three
notches to BBB-plus following the bailout.
Stamenkovic said the market had got other euro zone
peripheral countries, such as Spain and Portugal, in its sight.
The premium investors demand to hold 10-year Irish
government bonds <IE10YT=TWEB> over German Bunds <DE10YT=TWEB>
rose 29 basis points to 571 bps, while spreads on 10-year
Portuguese bonds <PT10YT=TWEB> were up 11 bps to 361 bps.
Benchmark 10-year Bund yields fell 2 bps to 3.029 percent as
investors took refuge in safer German government debt, and gold
<XAU=> rose 0.3 percent.
The cost of insuring sovereign bonds issued by euro zone
peripheral countries rose, with the five-year credit default
swaps on Ireland widening 15 bps to 581 bps and Portuguese CDS
moving out by 13 bps to 470 bps.
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Euro zone graphic package: http://r.reuters.com/hyb65p
Euro zone credit ratings: http://r.reuters.com/get52k
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Ireland's stock market <.ISEQ> lost 0.2 percent and Spain's
blue chips <> eased 0.5 percent, while the pan-European
FTSEurofirst 300 <> index fell 0.4 percent.
EURO UP ON GERMAN BIZ SURVEY
The euro rose 0.6 percent to $1.3311 after the Munich-based
Ifo think tank business sentiment survey. []
German's stocks <>, however, lost 0.1 percent. The
Frankfurt's DAX index has gained more than 17 percent this year,
outperforming other major indexes.
"The euro has received a short term boost from those Ifo
numbers, but then Germany was never the problem in the euro
zone," said Ian Stannard, senior currency strategist, at BNP.
"The peripheral debt issue is a bigger problem -- any bounce
in the euro should be a good selling opportunity. We see the
euro heading lower into the year-end perhaps to the $1.30 area."
Still, the euro zone debt crisis could derail global
recovery and wreck the so far optimistic outlook for stocks in
2011 based on more U.S. stimulus and strong China growth.
Driven by the prospects of better U.S. growth and a higher
U.S. budget deficit, Treasury yields have risen sharply, with
the 10-year benchmark yields up by some 60 bps this month.
On Friday, yields on the 10-year U.S. Treasuries <US10YT=RR>
slipped 3 bps to 3.4054 percent, off a seven-month high of 3.56
percent hit in the previous session, while the dollar <.DXY>
fell 0.5 percent against a basket of major currencies.
World equities measured by MSCI All-Country World Index
<.MIWD00000PUS> gained 0.2 percent. The index is up more than 8
percent this year, underperforming a 12.8 percent rise in the
emerging market benchmark <.MSCIEF>.
However, the MSCI world index carries a one-year forward
price-to-earnings of 12.4 times, versus the emerging market
gauge's 11.7, according to Thomson Reuters Datastream.
U.S. stock index futures <SPc1> <DJc2> <NDc1> were flat to
slightly weaker, while Japan's Nikkei <> fell 0.1 percent.
Copper prices <CMCU3> rose 1.1 percent and oil <CLc1> added
0.1 percent on the back of a weaker U.S. dollar and cold weather
in the United States and Europe.
(Additional reporting by Emily Flitter, Anirban Nag and Emelia
Sithole-Matarise in London)
