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Spanish, Italian Notes Rise on Bets for ESM Enhancement

Spanish and Italian bonds rose on speculation the European Central Bank will augment the firepower of the region’s bailout fund as policy makers step up efforts to contain contagion from the debt crisis.

Spain’s two-year note yield fell from a euro-era record after ECB council member Ewald Nowotny said there are arguments in favor of giving the European Stability Mechanism a banking license, enabling it to borrow from the central bank. German bunds dropped for a third day as the nation sold 2.32 billion euros ($2.81 billion) of 30-year debt at a record-low yield. Business confidence in Europe’s biggest economy slid to a two-year low in July, an industry report showed.