Markets Rise On Positive Bailout Fund Talks

EU officials have said private sector investors, like banks and insurance funds, may not be forced to contribute to the European Stability Mechanism.

The considerations are part of ongoing talks on changing the EU treaty, and include tighter fiscal controls in member states.

The region's permanent bailout facility is due to come into effect in 2013, and it was previously thought that the private sector should be forced to bear a portion of the burden.

Eurozone fears had weighed on stock markets over the morning but the EU announcement meant fortunes soon changed.

While Britain's main share index began its tenth consecutive day of losses, the FTSE 100 and Germany's DAX and France's CAC indices moved into positive territory by mid afternoon.

Earlier, six-month borrowing costs for Italy hit a record euro-era high, with investors demanding increasingly higher returns to lend to the indebted country.

At Friday's bond auction, six-month yields were a staggering 6.5% reflecting the perceived high risk of the country being unable to pay back its loans.

Despite action by the European Central Bank to buy up Italian bonds maturing in 2013, yields jumped past 8%, while benchmark 10-year returns rose to 7.3%.

The country is due to auction three-year and 10-year bonds on Tuesday.

Ollie Rehn, the European Economic Commissioner, is scheduled to meet Italy's interim head Mario Monti later today.

With its large fiscal imbalances and high debts, Portugal was downgraded to junk status by the credit agency Fitch Ratings on Thursday.

The new rating of BB+ will make it even more difficult for the country to raise funds on the bond markets.

Meanwhile, yields on German 10-year bonds surpassed that of equivalent UK bonds for the first time in three years on Thursday, before easing again, but remain above 2.2% today.

Traditionally seen as a safe investment, the German Bund auction failed on Wednesday to raise the full amount, further fuelling fears about the eurozone.

Germany's politicians have approved the budget for 2012, which will see net borrowing rise slightly to 26bn euros (£22bn).