Commodities outperformed as risk sentiment stabilised after the previous day’s sharp deterioration. However, lingering concerns over eurozone sovereign debt kept the mood in the markets fragile.

Brent crude oil climbed more than $2 to $112 a barrel after Goldman Sachs called a bottom to the recent commodities correction and raised its forecast, predicting that Brent would reach $130 in 12 months.

“The oil market continues to draw on inventories and Opec spare capacity in order to balance,” said Goldman’s Thomas Stolper.

“In our view, it is only a matter of time until inventories and Opec spare capacity will become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supplies.”

Elsewhere in the commodities complex, copper recovered part of the previous day’s fall, while gold touched a two-week high as worries about Greek debt refused to fade away.

Indeed, the cost of insuring against a Greek sovereign default – as measured by credit default swap spreads – rose to a record high, even after the Athens government endorsed plans for accelerated asset sales and further budget cuts in an effort to ensure its next quarterly tranche of funding from the EU-IMF.

The mood was not helped by comments from Christian Noyer, a member of the European Central Bank’s governing council, that a Greek debt restructuring would be a “horror scenario”. His remarks served to re-emphasise the ECB’s strong opposition to any form of restructuring by Greece.

Meanwhile, Moody’s Investors Service, the credit rating agency, warned that a default by Athens “would be highly destabilising and would have implications for the creditworthiness of issuers across Europe”.

However, Spanish and Italian CDS spreads narrowed, after widening sharply on Monday, as worries about contagion from nations on the eurozone periphery moderated.

“It appears that the market is still supporting the decoupling theory and is relatively sanguine on these two important sovereigns,” said Gavan Nolan, credit analyst at Markit.

“This has to be maintained if European risky assets are to be at least partially insulated from problems in the periphery.”

The markets largely shrugged off rating agency Fitch’s decision on Monday to revise its outlook for Belgium’s AA plus credit rating from stable to negative.

Some comfort for the markets came from the Ifo economic institute, whose index of German business confidence held steady this month, defying expectations for a third successive monthly decline. Furthermore, German first-quarter gross domestic product growth was confirmed at 1.5 per cent quarter on quarter.

The reports offset a disappointing reading for March eurozone industrial production, and helped the euro bounce off an eight-week low against the dollar to regain the $1.41 level. The single currency also pulled away from Monday’s record trough against the Swiss franc.

German government bonds retreated following sharp gains on Monday, with the yield on the 10-year Bund rising 5 basis points to 3.07 per cent. The 10-year Treasury yield fell 2bp to 3.11 per cent after an auction of 2-year notes was in strong demand, encouraging a shaky afternoon for Wall Street equities.

US investors were largely unmoved by data that showed a second consecutive strong rise in new home sales in April.

Analysts noted that despite the increase, sales remained worryingly close to record lows.

The S&P 500 was down 0.1 per cent, while the FTSE Eurofirst 300 pared an early advance to finish just 0.2 per cent higher.

In Tokyo, the Nikkei 225 Average rallied off a five-week low to end up 0.2 per cent, buoyed by a sharp rise for Sony.

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