Cash-flush investors snapped up eurozone debt Tuesday despite a slew of sovereign downgrades, pouring money into the region\'s bailout fund as well as into Spanish and Greek paper. Buyers lined up for the debt auctions, showing a new appetite for risk since the European Central Bank loaned nearly half a trillion euros at a rock-bottom rate to the region\'s banks last month. Standard & Poor\'s downgrades of nine European nations\' sovereign ratings on Friday including Spain\'s, and its decision to remove the eurozone bailout fund\'s AAA rating on Monday, failed to dissuade investors. \"It was expected because it is all to do with the ECB\'s three-year long-term refinancing operation,\" said Edward Hugh, an independent economist based in Barcelona. The three-year loans from the Frankfurt-based central bank, carrying a one-percent interest rate, allowed the banks to buy up sovereign bonds and pocket the higher returns, he said. They also enabled the banks to refinance their own borrowing. But the ECB operation was not likely to free up credit in the system, Hugh said, because the banks were using the money to avoid writing off existing bad loans instead of lending to new businesses. \"That\'s what is freezing the whole thing up,\" he said. European stock markets closed higher with London\'s FTSE index up 0.65 percent at 5,693.95 points, Paris\' CAC-40 index up 1.40 percent at 3,269.99 points and Frankfurt\'s DAX 30 up 1.82 percent at 6,332.93 points. The euro jumped to $1.2762 in afternoon London deals from $1.2667 late in New York on Monday. With plenty of ECB money in the banks\' pockets, the debt auctions passed off smoothly. Demand outstripped supply by more than three to one in first-ever auction of six-month debt by the European Financial Stability Facility, the backstop for eurozone sovereigns in case of collapse. Germany\'s Bundesbank, which organised the auction, said it received 4.6 billion euros\' ($5.9 billion) worth of bids for 1.5 billion euros of six-month bonds, at an average yield of 0.2664 percent. On Monday, the Standard and Poor\'s ratings agency downgraded the EFSF by one notch to AA+ but said it would restore its top AAA ranking if the fund obtains additional guarantees. European Union president Herman Van Rompuy said in Madrid that the downgrade would have no impact on the fund\'s capacity to act, and noted that neither Moody\'s Investors Service nor Fitch Rating had cut the rating. Spain\'s borrowing costs plummeted in an auction of 12- and 16-month paper, allowing it to raise 4.88 billion euros with demand outstripping supply by more than three times. Spain\'s new right-leaning Popular Party government, which took power last month after beating the Socialists in November 20 elections, is battling to regain the confidence of the markets after the 2011 target was overshot. Prime Minister Mariano Rajoy has vowed to meet the 2012 goal of reducing the deficit to 4.4 percent of GDP, even if that means he must find a way to lop an estimated 40 billion euros off the budget. After talks with the visiting EU president, Rajoy also vowed that his cabinet would approve \"urgent\" reforms of the budget, labour market and banks by February 10. Even Greece -- whose debt negotiations with private creditors are at the heart of market concerns over the eurozone\'s sovereign debt outlook -- said demand outstripped supply three times in a short-term debt sale. The country managed to raise 1.625 billion euros in three-month debt -- well above the original target of 1.25 billion euros -- as the rate eased to 4.64 percent from 4.68 percent. Bailed out in May 2010 by the EU and International Monetary Fund and in the process of nailing down a second rescue plan, Greece faces tough talks with private creditors Wednesday to wipe 100 billion euros off its total debt of around 350 billion euros. Other data showed strains lying beneath the surface in the eurozone, however. Banks in the 17-nation bloc parked a record 502 billion euros in poorly-remunerated overnight deposits with the ECB, latest figures showed, suggesting they were unwilling to risk lending that money to each other at more favourable rates. And in a sign of the difficulty the eurozone nations have in pushing through reforms, Portugal dropped plans Tuesday to extend the official working day after 17 hours of talks with unions and employers. In exchange, however, the government secured agreement on other reforms, including the cancellation of four public holidays, the reduction of annual holidays by three days and the easing of rules on working hours.