While you were sleeping: Euro worries resurface

Wednesday 7th March 2012

Renewed concern about the impact of the Greek debt crisis on Europe's limping economy exacerbated fears about the slowing pace of global growth, sending stock markets on both sides of the Atlantic sharply lower.

A report showing that the euro zone economy contracted in the fourth quarter of 2011 came amid increasing nervousness about the success of a Greek debt swap deal with private creditors and a day after China downgraded its expectations for growth in 2012.

"The concern in the market is the realisation that China is affected by Europe as much as anyone else is,"Art Hogan, managing director of Lazard Capital Markets in New York, told Reuters.

In early afternoon trading in New York, the Dow Jones Industrial Average shed 1.48 percent, the Standard & Poor's 500 Index dropped 1.53 percent and the Nasdaq Composite Index declined 1.45 percent.

Europe's Stoxx 600 Index closed with a 2.7 percent loss on the day.

There's mounting worry about the restructuring of Greece's debt. The private investors that so far declared their participation hold about 20 percent of the bonds involved in a swap needed for an international financial rescue. The Greek government has set a 75 percent participation rate as a threshold for proceeding with the transaction.

"With the debt-swap deadline approaching and only 20 percent acceptance so far by private investors, it’s easy to understand why market participants are nervous,” Stephane Ekolo, chief European strategist at Market Securities in London, told Bloomberg. “We’re realising once again that we are far from over with the problems.”

A disorderly Greek default would cause more than a trillion euros of damage to the euro zone and could leave Italy and Spain dependent on outside help to stop a crisis from spreading, Reuters reported, citing the main bondholders group.

The euro zone’s economy shrank 0.3 percent in the fourth-quarter from the third quarter, according to the European Union’s statistics office. That's in line with an initial estimate published on February 15.

The euro suffered as a result, dropping 0.7 percent to US$1.3122 by midday trading in New York. The euro weakened 1.7 percent to 105.93 yen.

Commodities also did poorly amid concern that a stuttering global economy will need - at least temporarily - fewer of them. The CRB commodities index weakened 1.2 percent, declining for a third session in a row.

Crude for April delivery shed 1.9 percent to US$104.74 a barrel in New York.

BusinessDesk.co.nz

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