Stock markets surged yesterday after the governor of the European Central Bank (ECB) declared that policymakers would do "whatever it takes" to save the euro.
Mario Draghi's comments had investors betting he was hinting at taking major action to fight Spain and Italy's punishingly high borrowing costs.
The FTSE 100 and Dow Jones Industrial Average jumped more than 1 per cent, but there were bigger rises on the continent, with Spain and Italy's leading share indices leaping around 6 per cent and France's 4 per cent.
Bond yields in struggling nations retreated from their highs, with Spain's borrowing cost for 10-year debt falling below 7 per cent for the first time since the middle of June and Italy's nearly reteating to the 6 per cent mark. The euro also leaped, heralding a return in City circles for Mr Draghi's nickname "Super Mario."
Speaking at the Global Investment Conference in London, Mr Draghi told business leaders: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."
He pointedly said dealing with the huge rates some countries were having to pay to borrow money was "within our mandate", a repetition of the phrase that led investors to assume he was considering buying government bonds in order to relieve the pressure on the likes of Spain and Italy.
The ECB has cut interest rates to record lows and offered to pump unlimited liquidity into banks but the eurozone is still in crisis.
Daiwa Capital Markets analyst Chris Scicluna said: "There's a lot of excitement about Draghi's remarks. This time around, new bond purchases might be conducted to buy time until a new Long-Term Refinancing Operation is launched." The last LTRO cheap loan scheme, in December 2011, triggered a rise of 16 per cent in European share prices in the months that followed.
Mr Draghi declined to comment on whether he thought Greece would eventually leave the single currency. Citigroup analysts had said there was a 90 per cent chance of that happening.
EU Commission president Manuel Barroso met Greek Prime Minister Antonis Samaras yesterday, coinciding with a visit by EU and International Monetary Fund inspectors who are gauging whether the country is living up to its austerity promises.
Mr Barroso said last night it was vital Greece continued pressing on with austerity, saying he was convinced the country could "make it", telling its citizens: "Staying in the euro is the best chance to avoid more hardship."
In an apparent echo of Mr Draghi's comments, he said the ECB would do "whatever is necessary" to secure the financial stability of the euro area.
William Poole, foreign exchange strategist at FC Exchange in London issued a note to clients headlined "Super Mario". But he questioned whether the markets bounce would last.
"In reality, the bigger picture still remains the same and until we see some concrete commitments it surely won't be long before the usual themes resume." He added: "It is almost testimony to the desperate state of markets that such a strong rally can stem merely from positive comments rather than anything solid."
The Bank of Tokyo Mitsubishi's Chris Rupkey told Bloomberg: "There is finally light at the end of the tunnel."Reuse content