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ECB-driven rally runs out of steam in Europe

Carlo Piovano, Associated Press

A woman walks in front of the electronic stock board of a securities firm showing Japan's Nikkei 225 index gained 118.61 points to 8561.71 in Tokyo, Friday, July 27, 2012. Asian stocks charged higher Friday after the European Central Bank's chief vowed to save the euro currency union from the continent's debt crisis and Samsung Electronics reported another record quarterly profit. (AP Photo/Itsuo Inouye)

LONDON (AP) -- European markets stabilized Friday after the previous day's rally, which had been driven by the European Central Bank chief's pledge to do whatever it takes to save the euro currency union.

ECB President Mario Draghi triggered a jump in stock markets — which lasted through Asian trading but faded in Europe on Friday — by suggesting Thursday that the central bank could intervene in markets to lower the borrowing rates of financially weak countries like Spain.

In late morning European trade, Britain's FTSE was down 0.1 percent at 5,566.58 and Germany's DAX shed 0.4 percent to 6,558.54. France's CAC 40 rose 0.1 percent to 3,210.14. Wall Street was set to gain with Dow futures and broader S&P 500 futures both up 0.1 percent.

The euro, which had spiked higher on Thursday, gave up some of those gains, trading 0.2 percent lower at $1.2261.

Market fears have grown over the past few weeks that Spain, the fourth-largest economy among the 17 that use the euro, could need a bailout along the lines of Greece, Ireland and Portugal because its borrowing rates are high. That would strain Europe's finances and potentially cause the breakup of the euro.

Analysts say the shockwaves from a splintering of the currency union would likely tip the world economy into recession.

Draghi suggested that the ECB considers it part of its job to keep government borrowing rates at normal levels. It could do so by buying government bonds, which has the effect of lowering their yield, or interest rate.

IG Markets strategist Stan Shamu said hopes for ECB action will remain elevated ahead of its scheduled Aug. 2 monetary policy meeting.

"The ECB will have to deliver at its central bank meeting next week. Simply cutting its refinancing rate is not going to be enough. It will need to announce something more substantial, or the euro runs the risk of getting smashed," he said in a commentary.

Benchmark borrowing rates for Spain and Italy were stable after sliding sharply on Thursday. Spain's 10-year bond yield remained under 7 percent at 6.93 percent, while Italy's traded at 6.04 percent.

Corporate earnings figures, meanwhile, were mostly upbeat. Shares rose in Barclays bank of the U.K., French oil company Total, EADS, the owner of plane maker Airbus, and carmaker Renault after they reported earnings.

Asian markets also got a boost from Samsung's record-high quarterly profit. Customers flocked to Galaxy smartphones, in the April-June quarter helping it outdo rivals even at a challenging time for the global tech industry. Samsung Electronics vaulted 5.2 percent in Seoul.

Japan's Nikkei 225 stock average closed up 1.5 percent at 8,566.64 and Hong Kong's Hang Seng added 2 percent to 19,274.96. Australia's S&P/ASX 200 rose 1.5 percent to 4,209.80. South Korea's Kospi climbed 2.6 percent to 1,829.16 and the Shanghai Composite inched up 0.1 percent to 2,128.76.

In energy markets, benchmark crude was up 32 cents at $89.71 in electronic trading on the New York Mercantile Exchange. The contract crude rose 42 cents to finish at $89.39 in New York on Thursday.