The European Central Bank will lend euro-area banks a record amount for three years and more than economists forecast in an effort to keep credit flowing to the economy during the sovereign debt crisis.
The Frankfurt-based ECB awarded 489 billion euros ($645 billion) in 1,134-day loans, the most ever in a single operation and more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark rate - - currently 1 percent -- over the period of the loans. They start tomorrow.
“It was obviously an offer the banks could not refuse,” said Laurent Fransolet, head of fixed income strategy at Barclays Capital in London. “It shows the ECB is not out of ammunition and it gives banks security on liquidity for a few years. On the other hand it means banks will rely on the ECB for longer.”
Europe’s debt crisis has increased the risk of government and bank defaults, making institutions wary of lending to each other and driving up the cost of credit. The ECB is trying to ensure that banks have access to cheap cash for the medium term so that they can keep lending to companies and households. In addition to the longer-term loans, the ECB has widened the pool of collateral banks can use to secure the funds.
New Money
Barclays estimates the loans will inject 193 billion euros of new money into the system, with 296 billion euros accounted for by maturing loans. The ECB also lent banks $33 billion for 14 days in a regular dollar offering, up from $5.1 billion a week ago, and 29.7 billion euros for 98 days.
The euro jumped half a cent to $1.3198 before slumping to $1.3080 at noon in Frankfurt. Spanish two-year notes extended a decline, snapping an eight-day gain and sending yields seven basis points higher to 3.42 percent. Italian notes also declined, pushing the yield nine basis points higher to 5.06 percent.
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Jump in housing starts points to recovery
(Reuters) - Housing starts and building permits jumped to a 1-1/2 year high in November as demand for rental apartments rose, suggesting the housing market was entering a tentative recovery.
Tuesday's data, which also showed gains in groundbreaking for single-family homes, was the latest sign of a quickening of an economic recovery that still faces risks both at home and abroad.
"Investors should take heart that if Europe doesn't melt down and Congress figures out how to extend the payroll tax cut, the economy can continue to gain momentum," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
Housing starts surged 9.3 percent to a seasonally adjusted annual rate of 685,000 units, the highest level since April last year, the Commerce Department said. Economists had forecast a 635,000-unit rate.
New permits for future construction increased 5.7 percent to a 681,000-unit pace in November, the highest since March 2010. That was also above expectations.
