Germany backs euro bailout fund

Stocks surged Thursday on a combination of surprisingly strong US economic data and the overwhelming approval by Germany's parliament of a bill to strengthen a bailout fund intended to help European countries deal with their debts.

Alongside concerns over Europe's debt crisis, investors have been spooked by a run of weak US economic data over the past couple of months - the result has been huge turmoil in financial markets.

But news that the US economy grew at an annual rate of 1.3 percent in the April-June quarter, up from an estimate of 1 percent made a month ago has calmed some investor fears about the world's largest economy, especially as the improvement largely reflected more consumer spending.

The mood in stock markets had already been largely positive after a clear victory for Chancellor Angela Merkel in a vote on beefing up Europe's bailout fund. More encouraging for the markets, perhaps, was the fact that Merkel did not have to rely on support from opposition parties.

In the short-term, the markets' hope is that the vote in favour of an expanded rescue fund - with 523 lawmakers in favor, 85 against and 3 abstentions - indicates Germany is fully behind efforts to shore up Europe's defenses against a crisis that has already seen three countries bailed out and stoked talk that Greece will default.

Germany is the biggest economy among the 17-countries that use the euro currency and has to contribute more than others to boosting the firepower of the bailout fund, the so-called European Financial Stability Facility, or EFSF. If passed, Germany will be guaranteeing loans in the future for up to ñ211 billion ($288 billion), rather than ñ123 billion so far.

In Europe, Germany's DAX was up 1.8 percent at 5,678 while France's CAC-40 rose 2 percent to 3,055. The FTSE 100 index of leading British shares was underperforming, trading up 0.2 percent to 5,230.

The improved appetite for risk on Thursday also helped the euro brush off another survey showing that Europe's economy was grinding to a halt. When risk appetite is high, the euro usually garners support against the dollar. Following the German vote, it was trading 0.6 percent higher at $1.3618.

In its monthly survey of economic conditions around the 17 countries that use the euro, the EU's executive arm, the European Commission said confidence fell further in September following the previous month's precipitous collapse. Its economic sentiment indicator stands at 95, against August's 98.4, and is below the long-run average. The last time it was lower was in December 2009.

The further decline in confidence is likely to put pressure on the European Central Bank to start cutting interest rates again, if not in October, then in November when Italy's Mario Draghi will have replaced the current head Jean-Claude Trichet.