Asian shares up on speculation of IMF bailout for Italy

image caption, Asian markets have seen huge volatility in wake of the European debt crisis

Asian shares rose on Monday on speculation that the International Monetary Fund (IMF) was preparing a bailout package for Italy.

The Nikkei 225 index rose 1.6%, South Korea's Kospi gained 2.2% and Australia's ASX 200 added 1.7%.

This was after Italian newspaper, La Stampa, reported that the IMF was preparing a 600bn euro ($794bn; £515bn) loan for Italy.

The IMF has denied talking to Italy about a deal to cut its debt costs.

There have been concerns about Italy's ability to pay back its debts.

"There are no discussions with the Italian authorities on a programme for IMF financing," said an IMF spokesperson.

However the speculation lifted Asian markets, also boosted by better-than-expected US holiday season sales.

"It is the speculation around Italy that is the key driver," said Savanth Sebastian of CommSec.

Allaying fears

Concerns about the the outcome of the Italian debt crisis have resulted in huge volatility in the global stock markets.

The Italian government's debt stands at 118% of the gross domestic product (GDP).

To make matters worse, its annual economic growth rate over the past 15 years has been just 0.75%, much lower than the rate of interest it pays on its debts.

The fear is that given its enormous debt levels and slow rate of growth, Italy may find it tough to pay back its debt and to raise further cash from the markets.

The fears were fanned further on Friday, after its latest bond auction saw the interest rates hit a record high.

The rate of interest for the new debts due to be repaid in six months rose to 6.504%, compared with 3.535% in the last comparable sale on 26 October, while the rate for two-year borrowing hit 7.814%, up from 4.628% last time.

According to the report in La Stampa, the IMF loan would be made available at a rate of between 4% to 5% bringing down Italy's borrowing cost.

Analysts said if the IMF deal does come through, it will help ease the burden on the Italian government.

"If the rumours are true, it will help to put a floor under the sovereign debt issues, it will give Italy 12 to 18 months and help drive some of the speculators out," he added.

Thanksgiving effect

Another factor that has seen the return of confidence in Asian investors has been the better-than-expected retail sales during the Thanksgiving weekend in the United States.

According to the National Retail Federation, sales during the holiday weekend climbed 16% to a record $52.4bn.

That has raised hopes of a robust demand for the Christmas and New Year holiday season from the world's biggest economy.

Analysts said this is good news for Asian exporters who rely heavily on demand from the US and Europe for their growth.

"Investors are hoping this may be the start of a general recovery in demand for electronics," said Chang In-beom, an analyst at Bookook Securities

The strong numbers resulted in shares of major electronics makers surging on the Kospi index.

Samsung Electronics rallied 3.3%, LG Electronics jumped 8.6% percent and LG Display advanced 6.3%.