* Euro hits 2-month high against dollar, 5-week high vs yen
* GE results, Spain's saving banks plan help European shares
* World stocks on track for worst weekly loss in 8 weeks
* Commodities recover, concerns remain over China tightening
By Dominic Lau
LONDON, Jan 21 (Reuters) - European shares rose on Friday,
boosted by reports that Spain plans to help recapitalise its
banking sector and strong results from U.S. bellwether General
Electric, while commodity prices also advanced.
The euro hit a two-month high against the dollar on growing
expectations that euro zone policymakers will arrive at a more
durable solution to the debt crisis. Hawkish noises from the
European Central Bank were also cited as a reason for the latest
surge in the currency.
U.S. stock index futures <SPc1> <DJc1> <NDc1> rose 0.3 to 0.4
percent on the back of the General Electric <GE.N> earnings.
Bank of America's <BAC.N>, however reported a second straight
quarterly loss, driven by a $2 billion writedown of its mortgage
business.
Spain's shares rose and borrowing costs eased after sources
and reports said Madrid plans a partial takeover of its weakest
savings banks as it seeks to reassure investors a costly bank
rescue will not weigh on its deficit. []
World stocks were also up but were set to post their biggest
weekly drop in eight weeks on concerns that rising inflation in
emerging economies, particularly in China and India, could lead
to aggressive policy action and hurt global growth.
So far this year, Chinese <> and Indian equities
<> have lost 3.3 and 7.3 percent, respectively. On the
other hand, euro zone peripheral equities, which were hit hard
last year by the sovereign debt crisis, have recovered in 2011.
"What underperformed last year is now being bought. Anything
that helps to stabilise the banking sector, especially in Spain,
has to be good news. In a dysfunctional banking sector -- this
is a good step but there's still a long way to travel," said
Andy Lynch, fund manager at Schroders in London.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on global inflation: http://r.reuters.com/wuz46r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Spanish shares <> rose 2.1 percent and are up 10
percent in January, while yields on the country's 10-year bond
<ES10YT=TWEB> fell 10 basis points to 5.24 percent.
Europe's FTSEurofirst 300 <> index gained 0.8 percent.
A source familiar with the matter told Reuters that Spain is
planning to force its debt-laden regional saving banks to become
conventional banks and seek stock market listings.
High levels of bad property loans at the savings banks are
seen as a major risk for Spain's government as it aggressively
cuts its budget deficit to stave off fears it will need an Irish
or Greek-style bailout from the European Union and International
Monetary Fund.
Among Spanish bank shares, Banco Santander <SAN.MC> advanced
4 percent and BBVA <BBVA.MC> put on 3.3 percent.
EURO RISES, COMMODS REBOUND
The euro <EUR=> rose 0.3 percent to $1.3522 after rallying
to a two-month high of $1.3556. It also hit a five-week high
against the yen <EURJPY=R>, at around 112.20 yen.
"This reaction seems overdone as it's highly unlikely the
ECB will raise rates soon and there's been nothing concrete on
the rescue fund," said Raghav Subbarao, currency strategist at
Barclays Capital.
"We think Portugal will have to be bailed out eventually.
After that the euro can rise further as Spain we believe is
solvent, but the euro rally is not sustainable here," he added.
The dollar <.DXY> was down 0.3 percent against a basket of
major currencies.
World equities as measured by the MSCI All-Country World
Index <.MIWD00000PUS> added 0.2 percent after falling for two
days in a row. The index has lost 0.9 percent this week, on
track for its worst weekly performance since late November.
In Asia, Japan's Nikkei average <> dropped 1.6 percent
and posted its biggest weekly loss in three months.
Copper <CMCU3> recovered 0.9 percent after falling 3.6
percent in the two previous sessions, and is down 2.2 percent
for the week, while oil <CLc1> snapped a three-session losing
streak, up 1.2 percent.
(Additional reporting by Brian Gorman, Neal Armstrong, Anirban
Nag and Kirsten Donovan; Editing by Toby Chopra)
