June 17, 2011 / 8:37 AM / 8 years ago

GLOBAL MARKETS-Euro, stocks fall on Greek contagion worries

* Euro, stocks subdued on Greek concerns

* Peripheral spreads widen, risk-off sentiment prevails

* Oil sinks, headed for biggest weekly drop since May

(Updates throughout)

By Anirban Nag

LONDON, June 17 (Reuters) - The euro hovered near a three-week low on Friday and European stocks headed for their seventh straight weekly loss as worries about a Greek default and the threat of contagion kept investors away from riskier assets.

World stocks neared three-month lows, oil headed for its biggest weekly drop since early May and peripheral bond spreads over benchmark German Bunds widened as political upheaval in Greece and the inability of euro zone policymakers to define the terms of a new rescue package soured investors’ appetite.

Greece’s prime minister has reshuffled his ministerial pack in an attempt to push through unpopular austerity reforms with a new finance minister at the helm. [nLDE75G0CY]

While Greek banks surged on the news, overall the move did little to soothe investors looking for signals on whether to shed more risky assets and take defensive positions over the next few months.

“The whole austerity issue is going to be around for a long time, but what we are trying to avoid here is contagion risk and liquidity crunch. That’s the primary concern for the markets right now,” said Graham Bishop, equity strategist at RBS.

“Near term, we have got much more defensive bias in our portfolios.”

German Chancellor Angela Merkel will meet with French President Nicolas Sarkozy to discuss the details of a new Greek aid package. German Deputy Foreign Minister Werner Hoyer said Germany and France will likely reach a compromise on involving private creditors.

The euro EUR= was firmly on the back foot, last down 0.5 percent against the dollar at $1.4140, not far from a three-week low of $1.4073 struck on Thursday.

The FTSEurofirst 300 .FTEU3 index of top European shares was down 0.9 percent at 1,075.35 points and has shed nearly 1.3 percent this week.

The MSCI world equity index .MIWD00000PUS fell 1.1 percent to trade near its lowest level since mid-March. The index has wiped out all the gains made this year.


Besides worrying about a potential Greek debt restructuring, and the repercussions for European banks that hold the country’s bonds, investors also fear global growth momentum is slowing just as the Federal Reserve prepares to end its $600 billion bond buying programme.

Weighing on stock markets, U.S. equity futures SPc1 pointed to a weaker start on Friday, with the U.S. S&P 500 index maybe heading for a test of its low for the year hit in March.

U.S. stock investors have been consolidating their exposure through ETFs. Inflows into the SPDR S&P 500 ETF, a popular exchange-traded fund that tracks the benchmark U.S. stock index, soared to a three-year high in the week ending June 15, but, excluding ETFs, U.S. equity funds had weekly outflows of $2.03 billion during the week. [ID:nN16246219]

The aversion to risk taking took its toll on commodities. Crude oil futures fell more than $1 a barrel early in the European session. Brent crude futures LCOc1 were $1.16 lower at $112.86 a barrel while U.S. crude futures fell $1.01 to $93.94 a barrel.

“Everyone is fearful about the euro financial crisis, especially in Greece,” said Ken Hasegawa, a commodity derivatives manager at Japan’s Newedge brokerage. “We have seen some good and some bad data. We hope the euro will stabilize because it’s very much correlated with crude.”

Gold edged lower with spot gold XAU= slipping to $1,524.09 by 0901 GMT. The metal is heading for its second consecutive weekly drop. (Additional reporting Atul Prakash in London; Editing by Mike Peacock)

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