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London - The euro slumped to a lifetime low versus the Swiss franc on Wednesday following credit ratings warnings on Portugal and Greece but European shares hit a fresh 27-month high on growing optimism that the region's economic recovery will continue next year.
The oil price topped $90 a barrel as a cold snap continued to wreak havoc in parts of Europe and on a drop in U.S. inventories while Wall Street was primed for a slightly weaker start, after climbing the previous day.
A warning from Moody's on Tuesday that it may cut Portugal's rating and an announcement from Fitch that it could downgrade Greece reminded investors that euro zone debt problems were far from over and continued to spur selling in the euro.
The single currency fell to 1.2493 Swiss francs, its weakest since its launch in 1999. However, it gained some respite against a broadly lower dollar on a Portuguese newspaper reported that China was ready to buy €4bn - €5bn of Portuguese sovereign debt.
Beijing offered no comment on the report, which failed to convince investors in the bond market as peripheral euro zone bonds remained under pressure with markets wanting more information on how European officials will deal with fiscal issues in the future.
"There's been no clarity on what European Union leaders will do to deal with the debt crisis," said Investec economist Philip Shaw.
"That uncertainty, coupled with the threat of downgrades to various peripheral countries has led to more spread widening and a weaker euro."
Global stocks measured by the MSCI All-Country World Index approached a 26-month high hit last month.
Europe's FTSEurofirst 300 index rose to 1 147.82, its highest intraday level since September 2008 but moves were exaggerated by thin pre-holiday trade.
The index was boosted by a near 9% surge in the share price of UK software company ARM Holdings, which supplies processors for Microsoft, on reports the software giant is working on a new version of its operating system.
Mining shares suffered from a fall in metals prices, but analysts said shares would remain supported through year end.
"Investors will be happy to see the market close off the year with a decent gain," said Richard Jeffrey chief investment officer at Cazenove Capital Management. "There's a lot of macro information today that may influence people's thinking on 2011."
In Tokyo, the Nikkei average dipped 0.2%, backing away from a seven-month intraday high hit earlier in the day after downbeat comments on the economy by Prime Minister Naoto Kan. Hong Kong's Hang Seng Index edged up 0.2%, helped by gains in property developers.
Gold up as safe haven
Reports that China is interested in buying Portuguese debt highlighted the currency market's focus on any possible move by China to diversify its massive currency reserves out of dollars and into other currencies, including the euro.
This is seen as a reason to sell the dollar against other currencies, although the move is expected to take place over a very long period.
The dollar index dipped 0.36%.
The newspaper report offered no relief for Portuguese bonds with 10-year yields rising 10 basis points to 6.80% on persistent concerns about Portugal's debt levels and fears it may be forced to follow Greece and Ireland and seek a bailout.
Yield premiums of periphery euro zone bonds over Bunds have been trending higher with the 10-year Portuguese spread widening around 60 basis points since the start of the month.
Analysts expect the euro and bonds issued by euro zone countries with ongoing debt problems to remain under pressure from a steady drip of grim ratings news.
Many argue that markets were already pricing even more gloom for the euro zone's weaker members - Greece, Portugal, Spain, Ireland and Belgium - and that ratings agencies were merely playing catch-up.
Debt and fiscal issues have plagued the euro all year, but European stocks have largely brushed off such issues as investors have put their money to work in equities on the view that the global economy will continue to grow in 2011.
Warnings from credit ratings on euro zone debt helped boost the appeal of gold as a safe asset and the gold price firmed to $1 388.65 an ounce on Wednesday, building on three straight sessions of gains.
Copper prices dipped to $9 365 on the London Metal Exchange after punching a record high of $9 392 on Tuesday.
Oil prices rose around half a percent on the day to $90.30 per barrel, boosted by unusually cold weather in parts of the northern hemisphere and after American Petroleum Institute data released late on Tuesday showed a large 5.8 million barrel decline in weekly crude stocks, surpassing analyst expectations.
