TSX heads for higher open amid hopes for resolution of European debt crisis

U.S. futures were well into positive territory amid news that AMR Corp., the parent of American Airlines, and its regional affiliate American Eagle are filing for Chapter 11 bankruptcy protection. American says labour-contract rules force it to spend at least US$600 million more than other airlines.

The Dow Jones industrial futures were ahead 64 points to 11,562, the Nasdaq futures gained nine points to 2,230 and the S&P 500 futures climbed 8.8 points to 1,199.9.

Stocks closed sharply higher Monday with the TSX gaining 178 points amid reports that Europe’s leaders were considering extreme steps that were unthinkable just weeks ago, such as having nations cede control over their budgets to a central European authority.

Another option reportedly under consideration is for the 17 nations in the euro grouping to sell bonds together, known as eurobonds, to help the countries in the deepest trouble because of debt.

Germany has resisted such a move but pressure on Berlin has intensified as the contagion from the eurozone’s debt crisis spreads from small economies like Greece to major ones like Italy, threatening to bust apart the eurozone.

The sense of urgency that a fix is badly needed was seen at a bond auction Tuesday morning where Italy’s borrowing rates skyrocketed.

Though Italy easily raised €7.49 billion, the yield on its three-year bonds surged to 7.89%, a full 2.96 percentage points higher than last month, while yields on 10-year bonds spiked to 7.56%, up 1.5 percentage points from October. Both rates are unsustainable for very long and are on par with levels that forced other eurozone governments to seek bailouts.

Italy is labouring under debts amounting to €1.9 trillion, or some 120% of its national income. The country, which is the eurozone’s third-largest economy, is considered to be too big to be bailed out under current rescue arrangements.

An Italian default would create devastating consequences for the eurozone, and send shockwaves throughout the global economy.

A lower U.S. dollar and better demand prospects took oil closer to the US$100 mark as the January contract on the New York Mercantile Exchange advanced 30 cents to US$98.51 a barrel.

Metals also rose as the December gold contract on the Nymex rose $3.10 to US$1,713.90 an ounce.

And the December copper contract was up a cent at US$3.37 a pound.

Earlier in Asia, Japan’s Nikkei 225 index rose 1.3%, boosted by gains among the country’s powerhouse export sector. South Korea’s Kospi climbed 1.8% and Hong Kong’s Hang Seng added 0.5%.

European bourses were also positive following strong gains Monday with London’s FTSE 100 ahead 0.13%, Frankfurt’s DAX gained 0.41% and the Paris CAC 40 was up 0.17%.

In corporate news, Calgary-based energy company Nexen Inc. (TSX:NXY) said it will create a partnership with a consortium led by Inpex Corp. of Japan to develop shale gas lands in northeast B.C. Nexen will sell a 40% working interest in its northeast B.C. assets and will remain the operator. The 40% interest will raise $700 million, with half up front and a 50% capital carry.