May 21, 2012 / 12:07 AM / 7 years ago

Shares steady near lows, investors fear Greece

LONDON (Reuters) - European shares and the euro steadied near their lows for the year on Monday as investor fears that Greece could leave the euro were partly countered by promises from China and the Group of Eight leaders at the weekend to support growth.

A trader monitors the screen on a trading floor in London January 22, 2010. REUTERS/Stefan Wermuth

The FTSE Eurofirst .FTEU3 index of top European shares was around 0.4 percent higher at 974.03 points after losing 5.1 percent last week to reach its lowest level of the year.

“There has to be a resolution around Greece before any sort of confidence comes back to the markets,” Andrew Wells, Global Chief Investment Officer, Fixed Income, at Fidelity Worldwide Investment.

The euro was down 0.1 percent 1.2777, but well above Friday’s four-month low of $1.2642, which was not far from its lowest point for 2012.

The leaders of the G8 major industrialized nations said they would take steps to combat financial turmoil and revitalize a global economy threatened by Europe’s debt crisis, but offered little in the way specific policies to help Greece, which holds fresh elections on June 17.

Investors are fearful the elections will favor anti-austerity parties, forcing Greece out of the euro and rekindling fears over the impact this will have on the region’s banking system and ultimately the global economy.

“If Greece defaults and leaves the currency block, containing contagion would prove extremely difficult,” JPMorgan Asset Management Market Strategist Joseph Tanious said.

Spain added to fears of a spreading euro zone crisis on Friday when it revised up its estimated 2011 budget deficit to 8.9 percent of GDP from a previous 8.5 percent, a figure that was already higher than the original target of 6 percent of GDP.

Spanish benchmark 10-year bond yields were 1.6 basis points higher at 6.29 percent on Monday although the Italian equivalent eased four basis points to 5.93 percent.

But German government bond futures edged lower as investors took profits after Friday’s rally.

June Bund futures were 30 ticks lower at 143.34, having risen as high as 144.03 on Friday. Ten-year yields were 3.2 basis points higher at 1.46 percent.

Focus in the euro zone debt markets is now on an informal summit of European Union leaders on Wednesday, at which French President Francois Hollande and like-minded euro zone leaders are expected to promote the idea of mutualising debt, including common bonds [ID:nL5E8GK73C].

Investors were also considering the impact of a record-breaking German pay deal, which will give millions of workers their biggest rise in wages in two decades, and boosting consumption in Europe’s biggest economy.


Offsetting some of the euro zone worries in global share and commodity markets were signs that the world’s second largest economy, China, was willing to support measures to boost growth.

“We should continue to implement a proactive fiscal policy and a prudent monetary policy while giving more priority to maintaining growth,” Premier Wen Jiabao said in comments reported by state news agency Xinhua on Sunday.

“Remarks from the Premier made during field trips are always in recognition that policymakers have noticed changes in economic fundamentals and are ready to respond,” said Yao Wei, a Hong Kong-based economist with Societe Generale.

Wen’s comments help lift Asian shares with Japan’s Nikkei average inching up 0.3 percent after finishing its seventh straight week of losses on Friday. MSCI’s index of Asian shares outside Japan .MIAPJ0000PUS also gained 0.5 percent.

The MSCI world equity index .MIWD00000PUS was slightly higher, up 0.25 percent at 299.01, but is still below where it started the year, having given up all the gains made after a concerted round of easing by central banks in the first quarter.

Brent crude also rose towards $108 per barrel on Monday, recovering from a 2012 low, on hopes the Chinese premier’s announcement could mean strong fuel demand by the world’s second largest oil user, although concerns about the euro zone crisis capped gains.

Brent crude gained for the first time in four sessions, adding 68 cents to $107.82 a barrel.

Additional reporting by Anirban Nag; editing by Anna Willard

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