Economy: Spanish bail-out bounce proves to be short-lived

MARKET relief yesterday at the €100 billion (£80bn) rescue of Spain’s banks was deflated by a report from the OECD showing that the powerhouse economies of China and India are running out of steam.

Britain’s FTSE 100, which moved 1.4 per cent ahead early on, surrendered all its gains to close almost flat as analysts also called into question the long-term value of the Spanish bail-out. Wall Street was off 35 points by lunchtime.

Angus Campbell, head of market analysis at Capital Spreads, said: “It dawned on investors that a bail-out for Spain doesn’t mean an end to the eurozone’s crisis as the country’s bond yields remained high, showing that if there are any investors brave enough to lend to the stricken economies they’re going to demand a fair whack in return.”

Meanwhile, the OECD said its composite leading indicator for China, which provides a measure of expected future economic activity, slipped to 99.1 in May from 99.4 in April, falling further below its long-term average of 100.

India also showed signs of weakening, dropping to 98.0 from 98.2. The OECD’s overall indicator, covering 33 countries, inched up to 100.5 from 100.4 over the month, helped by fresh growth in activity in the United States, Japan and Russia. But the Paris-based economic think-tank said the pace of improvement in all three countries had slowed.

The OECD said the outlook for Britain and the eurozone remained below the long-term average, as fiscal deficit reduction would weigh on economic growth.