Milan weakens Monday despite strong U.S. data

Spread between Italian, German bonds narrows to 258 basis point

Milan weakens Monday despite strong U.S. data

Milan, August 5 - Milan's main financial market was essentially flat Monday, along with most of its European counterparts, despite positive news from the United States' economy. The FTSE-Mib shed 0.13% to close at 16,757 points as investors shrugged off signs of growth in the world's largest economy as well as fragile stability within the Italian government. Despite outrage among his followers over his conviction last week for tax fraud, ex-premier Silvio Berlusconi told a rally Sunday that he would continue to support the fragile Italian coalition government. That should be good news for investors, worried about the possibility of new elections in Italy. Meanwhile, reports Monday showed that service industries in the US expanded in July at the fastest pace in five months, complementing a rebound in manufacturing and adding to optimism of an economic recovery. The US Institute for Supply Management's non-manufacturing index increased to 56, beating forecasts as it rose from three-year low of 52.2 in June. The ISM figures follow reports last week that showed manufacturing advanced at the fastest rate in more than two years and underscored the United States Federal Reserve's forecast for a stronger economy through year-end. Meanwhile, the spread between Italy's 10-year bond and its German counterpart dropped to 258 basis points on Monday, the lowest level it has reached since early in June. The yield on Italian 10-year paper also dropped sharply, closing at 4.27%. The spread between lending rates in the two countries is seen as an indication of investor faith in the Italian economy and its ability to cope with a lingering recession. On other European markets, Frankfurt's DAX slipped lower by 0.10% on the day, closing at 8,398.38 points, while Paris's CAC 40 edged up by 0.11% at 4,049.97 points, and London's FTSE shed 0.43% ending trading at 6,619.58. Spain's IBEX 35 lost 0.15% to close at 8,560.80 points.

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