Markets buoyed by news of Greek debt deal

PAN PYLAS AP Business Writer Published:

LONDON (AP) -- Stock markets extended gains and the euro struck a two-month high against the dollar Thursday after the Greek Prime Minister's office said a deal has been struck with coalition parties on new cuts that are necessary for the country to get crucial bailout funds.

Greece needs the money to avoid defaulting on its debts next month when a big bond repayment is due -- a scenario that could send shock waves all round the European economy.

Following confirmation that a deal has been agreed by Greece's often-squabbling politicians, stock markets, the euro and oil prices rose. Though the prevailing view has for weeks been that Greece would get its bailout, there was still an element of doubt especially as the talks dragged on for days longer than anticipated.

In Europe, the FTSE 100 index of leading British shares was up 0.6 percent at 5,911 while Germany's DAX rose 0.9 percent to 6,807. The CAC-40 in France was 0.9 percent higher at 3,441.

The euro was trading up 0.4 percent at $1.3294, near two-month highs.

Wall Street was poised for a solid opening, too -- Dow futures and S&P 500 futures were both up 0.3 percent.

A Greek deal had appeared to be imminent in the early hours of Thursday following marathon talks but the leaders of the three political parties supporting the government led by Prime Minister Lucas Papademos failed to accept the entire batch of new harsh austerity measures demanded by creditors. The talks stalled after the leaders balked at creditors' demands to make €300 million ($398 million) in pension cuts.

The focus in the markets remains on Greece despite a raft of mixed earnings in Europe. While Germany's Daimler AG saw its share price bounce around 5 percent following another strong performance from its Mercedes luxury car division, Swiss bank Credit Suisse AG and Dutch bank and insurance firm ING Groep NV were down around 3 percent after disappointing updates.

The attention over the rest of the day will likely remain on Greece, especially at the monthly press conference of European Central Bank president Mario Draghi after the bank announced it was keeping its benchmark interest rate unchanged at 1 percent.

Draghi will likely be asked at his press conference whether the bank will help lighten Greece's debt loan by forgoing profits on €55 billion ($72 billion) in Greek bonds it owns. The ECB could do that by selling the bonds to the eurozone bailout fund for what it paid for them, and the fund could then write them down, lightening Athens debt load.

The Bank of England was also focus after it announced its intention to pump another 50 billion pounds ($79 billion) into the ailing British economy while keeping its own main interest rate at the record low of 0.5 percent.

The hope is that by increasing the amount of money in the financial system the purchases, known as quantitative easing or QE, will loosen credit for businesses and raise asset prices. Quantitative easing can be inflationary, but analysts say the bank has room to act.

Earlier, Asian shares were muted by Chinese inflation figures showed consumer prices rose 4.5 percent in January over a year earlier, up from the previous month's 4.1 percent. The People's Bank of China eased lending curbs in December to promote growth in the slowing economy but the unexpected jump in the cost of living could make the central bank wary of carrying out further steps to loosen credit.

On mainland China, the benchmark Shanghai Composite Index gained 0.1 percent to 2,349.59. The Shenzhen Composite Index gained 0.6 percent to 898.89.

Japan's Nikkei 225 index closed down 0.2 percent to 9,002.24 while South Korea's Kospi rose 0.5 percent to 2,014.62. Hong Kong's Hang Seng slipped marginally to 20,010.01

Oil markets were fairly subdued as attention centered on the Greek bailout talks -- benchmark oil for March delivery was up 82 cents to $99.53 per barrel in electronic trading on the New York Mercantile Exchange.