Markets Nervous As Greek Crisis Talks Continue

Published February 7, 2012 10:18AM (EST)

LONDON (AP) — Stocks were trading lower on Tuesday as talks dragged on in Greece to agree the terms of a second bailout — and avoid looming bankruptcy — despite intense pressure from the country's euro partners.

With much of Greece coming to a standstill due to a general strike called against impending cutbacks, markets will be monitoring political leaders' talks in Athens. Heads of the three parties backing the interim government will try to thrash out a deal on new austerity measures needed to get vital bailout cash.

They will confer with Prime Minister Lucas Papademos on new income cuts and job losses, which Greece's eurozone partners and the International Monetary Fund are demanding to keep the country's rescue loans flowing. With a general election scheduled to take place within a few months, political leaders are fretting about the impact on their fortunes of signing up to a deal that imposes more hardship on Greece's population.

"No one in Greece wants to be seen to be tightening the austerity noose even tighter for fear of being punished at the polls," said Michael Hewson, markets analyst at CMC Markets.

Athens must placate its creditors to clinch a euro130 billion ($170 billion) bailout deal from the eurozone and the IMF and avoid a March default on its bond repayments.

Without an injection of emergency money, Greece will likely default on its bond repayments on March 20 — an event that could shake European banks and other private lenders with Greek debt on their books.

President Nicolas Sarkozy of France and German Chancellor Angela Merkel have warned Greek leaders that they need to push through the austerity measures or risk letting the country go bankrupt.

Even though another round of deadlines have passed, the prevailing mood in the markets is that Greece will get a debt-reduction deal with its private creditors as well as the second bailout.

"It is difficult to say how this will play out in the short term but the most likely outcome remains that some kind of agreement will be stitched together because the alternative is so dark for all parties," said Gary Jenkins, managing director at Swordfish Research.

In Europe, the FTSE 100 index of leading British shares was down 0.2 percent at 5,878 while Germany's DAX fell 0.5 percent to 6,731. The CAC-40 in France was 0.3 percent lower at 3,395.

Wall Street was also poised for a subdued opening, with Dow futures and the broader S&P 500 futures broadly unchanged at 12,773 and 1,338.

The euro was little changed against the dollar at $1.3130 while oil prices were a tad lower — the benchmark New York rate was 25 cents down at $96.66 a barrel.

European corporate news was more upbeat, not least the confirmation that mining company Xstrata PLC and commodities dealer Glencore International PLC agreed a $90 billion merger that will create the world's fourth largest natural resources company. The announcement of the terms of the deal comes just a few days after the revelation that the two companies were in discussions about a long-mooted tie-up.

Xstrata shares were down nearly 2 percent as investors had hoped the premium would be a little higher than the 15.2 percent that's on offer.

BP PLC shares were flat even after it raised its quarterly dividend by 14 percent after posting double-digit gains in profit and revenue in the last three months of 2011 despite further big payments to compensate for a disastrous oil spill in the Gulf of Mexico.

Steel maker ArcelorMittal SA was faring better after voicing some cautious optimism about its near-term —prospects even after it reported a heavy fourth quarter loss generated by a deteriorating European economy and big tax and restructuring charges.

Earlier in Asia, the mood in the markets was subdued.

In mainland China, the benchmark Shanghai Composite Index fell 1.7 percent to 2,291.90 while the smaller Shenzhen Composite Index lost 1.7 percent to 869.87. Japan's Nikkei index fell 0.1 percent to 8,917.52 while Hong Kong's Hang Seng Index dropped the same rate to 20,699.19.

By Salon Staff

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