Euro slumps, shares rise after Italy bond auction

In afternoon trade, the European single currency tumbled to $1.2858 -- the lowest level since September 14, 2010 -- before pushing back to $1.2917 at close in London, down from $1.234 on Wednesday.

The unit also sank against the safe-haven Japanese yen, striking 100.06 yen -- last seen in June 2001 -- before bouncing back to 100.40 yen, down from 100.80 yen on Wednesday.

The dollar fell to 77.73 yen from 77.90 yen on Wednesday.

On the stock markets, traders set the bond auction aside and shares gained in low trading volumes, taking reassurance from weekly jobs numbers in the US.

At close, London's FTSE-100 finished up 1.08 per cent at 5,566.77 points. In Paris the CAC-40 jumped 1.84 per cent to 3,127.56 points while in Frankfurt the DAX 30 gained 1.34 per cent to 5,848.78 points.

Italian stocks were weighed down for much of the day, but closed the session 0.76 per cent higher.

US stocks gained in midday trade Thursday helped by a weekly jobless claims number that confirmed the improving trend in the labor market.

In midday trade, the Dow Jones Industrial Average was up 0.72 per cent at 12,238.94 points. The broader S&P 500 0.74 per cent to 1,258.89 points, while the Nasdaq Composite gained 0.56 per cent to 2,604.45 points.

Italy scraped through a key bond auction test on Thursday at the end of a disastrous year for the eurozone, raising 7.0 billion euros ($9.0 billion).

That was below the maximum sought of 8.5 billion euros but long-term rates holding below the danger threshold of 7.0 per cent which has set off alarm bells around the world.

The rate on bonds due in 2021 was at 6.7 per cent -- higher than the level of 5.77 per cent for the last similar operation on October 13. The rate on bonds due in 2022, however, was 6.98 per cent compared to 7.56 per cent in November.

"The bond auction went okay, given what is going on in the eurozone, but almost 7.0 per cent for 10-year paper is very high and I can see the yield creeping up very quickly if issues persist," ETX Capital trader Manoj Ladwa told AFP.

"Italy has a lot more leeway than Greece in that it can stay above 7.0 per cent for a longer period than the smaller EU members.

"But we cannot rule out a bail-out for Italy if the market loses patience with EU ministers' lack of action over the debt crisis."

The ability of Italy to borrow on the market was being closely watched as a test of confidence in the eurozone, which has been blighted this year by the sovereign debt crisis.

Italy had on Wednesday raised 9.0 billion euros in six-month bonds at a rate of 3.251 per cent -- half the rate of 6.504 per cent that it was forced to pay in November.

Thin trading conditions are meanwhile sparking volatile market moves ahead of the New Year break.

"In the context of the yesterday's auction, today's results were disappointing as the demand was less than expected and did not reach the maximum target," added analyst Anita Paluch at Gekko Global Markets.

"This is definitely not helping the euro -- but we have to consider that many traders are away."

Initial US jobless claims climbed to 381,000 in the week ending December 24, up from 366,000 the previous week -- but traders took solace in the four-week moving average, which fell to 375,000, a level last seen in June 2008.

"Despite the uptick in initial claims, the US labor market continues to show signs of gradual improvement," said Robert Kavic of BMO Capital Markets.

In Asia on Thursday, Hong Kong dropped 0.65 per cent, Sydney stocks fell 0.43 per cent and Tokyo shed 0.29 per cent.