Markets Subdued As Greek Debt Talks Remain Focus

Published January 19, 2012 10:45AM (EST)

LONDON (AP) — Financial markets were subdued Thursday as investors awaited developments in Greece's debt-reduction talks with private creditors, a day after the International Monetary Fund revealed it was looking to get its hands on another half a trillion dollars to help it shore up a fragile global economy.

Another successful bond auction from Spain and relief that Germany's second-largest bank, Commerzbank AG, won't need to help from shareholders or the government to boost its capital base helped ease concerns over Europe's debt crisis in the run-up to a raft of U.S. corporate earnings.

However, the main focus of attention in markets remains the negotiations between Greece and the Institute of International Finance, which represents private sector bondholders. Talks are set to continue later, having restarted Wednesday.

Greece needs to clinch the agreement quickly to qualify for more bailout loans before it faces a major bond repayment on March 20. Without the money, the country would find it difficult to service its debts and be forced to default, potentially triggering more turmoil in global markets.

Last October, Greece's partners in the eurozone sanctioned a deal whereby Greece's creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country's debt burden. The deal with private investors aims to reduce Greece's debt by euro100 billion ($127.9 billion) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a euro130 billion international bailout, the second one for Greece.

Hopes that a deal is being thrashed out has helped shore up sentiment in markets in recent days as has the IMF's revelation that it aims to raise up to $500 billion to meet its $1 trillion financing needs in coming years. The new money to be raised includes $200 billion that European countries recently agreed to hand the IMF.

"There was a time when the idea that a body like the IMF would need such a huge amount of money to cover such a short period of time would have been taken as bad news," said Gary Jenkins, an analyst at Swordfish Research. "This is not the first time in this crisis that a big figure has been thrown out there so it will be interesting to see if this time there is any reality behind the number."

As investors awaited more details on the Greek deal and the IMF's fundraising, market movements were subdued.

In Europe, the FTSE 100 index of leading British shares was flat at 5,701 but France's CAC-40 rose 0.5 percent to 3,281. Germany's DAX fell 0.2 percent to 6,344 even though shares in Commerzbank AG rallied around 10 percent after it revealed it could raise euro5.3 billion ($6.8 billion) to shore up its capital base, as demanded by European regulators, without resorting to the state or shareholders.

A recent easing in concerns over Europe's debt crisis has helped the euro clamber off Monday's 17-month low against the dollar below $1.27. It's now trading around two cents higher at $1.2881, up 0.2 percent on the day.

Wall Street was poised for a flat opening, though a raft of U.S. earnings later from the likes of Bank of America and Morgan Stanley could change that. Dow futures were down 0.1 percent at 12,496 while the broader Standard & Poor's 500 futures fell a similar rate to 1,300.

"Unusually, at least compared to the last few months, Europe may not dwarf investor's agenda this afternoon as a host of U.S. firms are due to report," said Shavaz Dhalla, a trader at Spreadex.

Earlier in Asia, Japan's Nikkei 225 index rose 1 percent to close at 8,639.68. South Korea's Kospi rebounded 1.2 percent to 1,914.97 after a losing session Wednesday. Hong Kong's Hang Seng rose 1.3 percent at 19,942.95.

Oil prices remained supported above $101 a barrel — benchmark oil for February delivery was up 69 cents to $101.28 per barrel in electronic trading on the New York Mercantile Exchange.


Pamela Sampson in Bangkok contributed to this report.

By Salon Staff

MORE FROM Salon Staff

Related Topics ------------------------------------------