The German Constitutional Court has ruled in favour of Eurozone rescue fund European Stability Mechanism (ESM) but with some strings attached.

As expected, Germany's highest court considered the Eurozone's rescue mechanism and fiscal pact to be constitutional but it has attached two conditions: First, Germany's contribution must be limited to €190bn unless there is parliamentary approval and second, both chambers of Congress - the Bundestag and Bundesrat - must be informed of the ESM's decisions.

This decision was the last major challenge before the ESM can replace the temporary European Financial Stability Facility (EFSF).

The markets reacted to the decision by extending its gains. European equities went from having a lackluster performance in early morning trade to showing an average gain of 0.4%. The Footsie swung into the blue and was making a 0.2% gain just before midday.

The euro/dollar moved above the 1.2900 mark.

MG

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