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Spanish bond offer to test market resolve

GERMANY and France yesterday signalled they were ready to keep supporting Greece as finance ministers prepared for a new round of crisis talks and Spain aimed to sell as much as ?4 billion ($5.4 billion) of bonds.

GERMANY and France yesterday signalled they were ready to keep supporting Greece as finance ministers prepared for a new round of crisis talks and Spain aimed to sell as much as ?4 billion ($5.4 billion) of bonds.

Global stocks rebounded after Chancellor Angela Merkel and President Nicolas Sarkozy said they were "convinced" Greece would stay in the euro group.

With global policymakers urging Europe to step up its crisis fight, officials meet in Wroclaw, Poland, later today to discuss how they will implement the expansion of the euro region's new bailout fund.

Investor skittishness over the spread of Europe's debt crisis has raised banks' funding costs and roiled markets worldwide. As European governments try to ratify a July 21 agreement to bolster the euro region's bailout fund and extend a second rescue to Greece, traders are concerned that Italy and Spain will be the next countries to slide into trouble.

With markets as fragile as before the financial crisis three years ago, Ms Merkel and Mr Sarkozy "had little choice" but to back Greece, said a Deutsche Bank strategist in London, Jim Reid. "The challenges will continue to mount for Europe in the weeks ahead, but this reduces the immediate risk of a financial disaster," he said.

Spain plans to sell bonds maturing in 2019 and 2020, two days after Italy's borrowing costs surged. The extra yield investors demand to hold Italian 10-year bonds over German bunds closed at 392 basis points, or 3.92 percentage points. Spain's comparable spread was at 359 basis points.

Europe's crisis has worsened as leaders split on how to deal with Greece. The Chinese Premier ,Wen Jiabao, has called on other countries to "put their houses in order" and Timothy Geithner will become the first US Treasury Secretary to attend a European finance ministers' summit.

Underscoring divisions in Europe, the European Commission president, Jose Barroso, said he was close to proposing options on joint euro-area bond sales, putting officials in Brussels on a collision course with Germany over steps to contain the sovereign debt crisis.

Meanwhile, in a three-way phone call, the Greek Prime Minister, George Papandreou, committed to enacting policies demanded by the EU and the International Monetary Fund to keep the bailout funds flowing.


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