U.S. stocks will get a lift on Monday after euro zone finance ministers agreed to lend Spain up to €100-billion ($125-billion U.S.) to help its battered banks.
The surprisingly large amount of aid removes a huge cloud that has been hanging over financial markets, with investors fearing that a banking crisis in the euro zone's fourth-largest economy could have compounded the currency bloc's troubles with Greece.
Though the exact amount to be lent will be decided in just over a week, striking a deal now means Spain has additional support in case Greece's June 17 elections throw financial markets into a tailspin.
"This is a major step in avoiding a contagion," said Tim Speiss, partner-in-charge of EisnerAmper's Personal Wealth Advisors Group in New York.
"The amount is pretty high, higher-than-expected. Although we need to get more details, at least for equity markets in the U.S. and around the world, this definitely eases short-term fears," Mr. Speiss said.
U.S. stocks are coming off their best week of 2012, in large part due to expectations that something would be done for Spain's banks.
After a two-and-a-half-hour conference call of the 17 finance ministers, which several sources described as heated, the Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.
For Wall Street, anything that diminishes fears over Europe is welcome news. The broad S&P 500 index fell 6.3 per cent in May, its largest percentage drop since September, as the euro zone debt crisis worsened in the wake of Greek elections that produced a hung parliament.
In other parts of the world, news was not as good.
Data showed China's inflation dipped to a two-year low in May while economic activity remained weak. This reinforced expectations that further policy easing could be in the pipeline to head off a sharper slowdown in the world's second-largest economy.
However, the data released by the National Bureau of Statistics on Saturday were not as grim as the market had feared after China's surprising interest rate cut this week – the first since the depths of the 2008-09 global crisis.
But the numbers still suggested economic activity remains sluggish in China. There were also concerns that while the economy may stabilize with stimulus measures, growth could slow down further.