LONDON The euro, shares and bond prices steadied on Wednesday after solid demand at an auction of Italian government debt helped calm fears that political stalemate in Rome could reignite the bloc's debt crisis.
Though paying more than half a point more interest than before the vote, Italy sold all 6.5 billion euros of the 5- and 10-year bonds it offered investors two days after an election offered no party a majority and renewed concern over its finances. It could have chosen to sell less.
Italian bonds and European stocks briefly rose after the sale. Bonds of other euro zone countries suffering concern over their creditworthiness were also helped. Save haven German bonds fell before recouping losses, while the euro dipped having just hit a session high of $1.3114.
"A very strong auction on all accounts, both when you look at the demand side and the pricing side. The Tesoro filled the maximum amount, with 4 billion allocated in the new 10-year, which is very strong." said Michael Leister, a senior bond strategist at Commerzbank in London.
Italian 10-year yields fell 7 basis points to 4.83 percent in the secondary market; the Bund future was 18 basis points up on the day at 145.09 after the sale.
Stock markets were choppy. The FTSEurofirst 300 jumped after the auction but momentum quickly faded and it was virtually flat again by 1115 MT following Tuesday's sharp falls.
Milan's FTSE MIB, which opened the day 0.8 percent higher, was up a more modest 0.1 percent. The DAX in Germany, the CAC 40 in France and FTSE in London were all broadly flat to marginally firmer.
The relief over Italy was somewhat offset by data from the European Central Bank which showed bank lending to euro zone firms contracted for the ninth month in a row in January despite its record low interest rates.
Separate figures also showed savers and firms in Cyprus, another of the euro zone's members now in crisis, had rushed to pull their money out of the island's banks last month as its problems intensified.
"Although euro zone banks' liquidity positions have improved overall since early 2012, it is clear that this has had little effect in boosting private-sector lending," said IHS Global Insight economist Howard Archer.
"It is also evident that the ECB's decision to cut its deposit rate to zero from 0.25 percent last July has done little to encourage banks to lend more to the private sector."
The euro zone jitters were balanced by Federal Reserve Chairman Ben Bernanke's defence on Tuesday of the U.S. central bank's monetary stimulus, which eased financial market worries over a possible early retreat from its policy of bond purchases.
Brent crude gained 28 cents to $112.90 a barrel, marking a steady recovery from its Tuesday low of $112.41 which was its weakest level in more than a month.
Iron ore, which hit a 16-month high of $160 a tonne last week on signs that China's giant steel mills were stocking up, was steady at around $151.90, having also suffered in the previous day's selloff of riskier assets
China's iron ore demand is expected to grow faster this year, at 5.7 percent to 1.11 billion tonnes, as the overall economy recovers, boosting demand for steel, according to the China Iron and Steel Association.
Three-month copper on the London Metal Exchange climbed 0.15 percent to $7,870 a tonne, though the metal remains one of the few risk assets to be down for the year to date.
(Additional reporting by Richard Hubbard: Editing by Anna Willard and Alastair Macdonald)