GLOBAL MARKETS-Shares, euro retreat as Cyprus euphoria fades
* Shares, euro pare initial gains after Cyprus gets bailout * Euro zone faces tough banking regime after deal - official * Safe-haven assets pare losses to rise on tough precedent By Herbert Lash NEW YORK, March 25 (Reuters) - Global equity markets and the euro retreated on Monday after a senior euro zone official said the Cyprus bailout reached earlier could be a new template for resolving regional banking problems by shifting more risk to depositors and stakeholders. The Cyprus rescue forced depositors and bank bond holders to bear losses, a deal that could become a template for future bank restructurings in the euro zone, said Dutch Finance Minister Jeroen Dijsselbloem. "What we've done last night is what I call pushing back the risks," Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times. Cypriot policy-makers reached an eleventh-hour deal with the European Union, the European Central Bank and the International Monetary Fund to shut down its second largest bank in return for 10 billion euro ($13 billion). While the bailout will avert a collapse of the Cypriot banking system and keep Cyprus within the euro zone, the agreement set a painful precedent for the region. Wall Street initially opened higher but retreated in morning trade, helping pull European equity markets lower. Italian blue-chips extended losses with traders citing speculation of a possible downgrade of Italy's sovereign debt by rating agency Moody's. The pan-European FTSEurofirst 300 index, which had risen 0.9 percent earlier in the day, fell by 0.2 percent to 1,187.44 points. The Dow Jones industrial average was down 44.18 points, or 0.30 percent, at 14,467.85. The Standard & Poor's 500 Index was down 2.22 points, or 0.14 percent, at 1,554.67. The Nasdaq Composite Index was down 7.67 points, or 0.24 percent, at 3,237.33. "The critical issue remains that of precedent for larger Eurozone countries, and the way in which the Cyprus situation has been managed does not seem to inspire a great deal of confidence," said Ilya Spivak, a currency strategist at DailyFX in New York. MSCI's all-country world equity index fell 0.12 percent to 358.21. The euro fell as low as $1.2866 and last traded at $1.2884, down 0.76 percent on the day, according to Reuters data. The bailout was initially hailed by investors who had feared Cyprus might default. However, the deal will inflict heavy losses on depositors, including wealthy Russians, on deposits of more than 100,000 euros, which are not guaranteed under EU law. Safe-haven assets such as U.S. Treasuries and German Bund futures retreated after initial gains. Depositors in Cypriot banking institutions must contend at best with capital controls locking up their money, Spivak said. At worst, they may lose as much as 40 percent of their holdings. "This raises an important question: Why should a depositor in any Eurozone country similarly vulnerable to a banking crisis expect to be unscathed if a Cyprus-like calamity were to befall them," Spivak said. The benchmark 10-year U.S. Treasury note also pared losses, rising 2/32 in price to yield 1.9198 percent. Bund futures were up 28 ticks on the day at 144.65, having fallen as low as 143.91 earlier in the session. Oil prices in London also retreated, with Brent crude falling 13 cents to above $107.53 a barrel. U.S. crude remained higher. U.S. light sweet crude oil rose 58 cents to $94.29 a barrel.