Greek debt woes, US economic data hurt stocks

AP News
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Posted: May 26, 2011 12:28 PM
Greek debt woes, US economic data hurt stocks

Stock markets and the euro fell Thursday on a report that Greece may not get the next installment of its international rescue loans. Weak U.S. economic data further weighed on sentiment.

Jean-Claude Juncker, the chairman of the Eurogroup, said in Luxembourg that the International Monetary Fund may have to hold back the next tranche of its funding for Greece, according to an analyst.

The reason is that the IMF's loans are contingent on Greece showing what its state financing will be over the next 12 months. Until recently, that was meant to include raising cash on bond markets next year, a move the Greek government has admitted is no longer possible as its market borrowing rates remain too high.

An IMF and EU delegation is now in Athens reviewing Greece's finances, and a decision on the IMF's next aid installment will be made in June.

David Mackie, analyst at JP Morgan in London, said Juncker may be trying to put pressure on Greece to reach a cross-party agreement on economic reforms. He said, however, that European governments would be ready to step in with extra aid.

"We do not believe that Greece will be allowed to default in the coming weeks due to a failure to disburse the funds under the current program," Mackie said.

If the IMF did withhold its aid, Europe's bailout fund could be tapped to make up for the difference.

Though Juncker's comments were not clear, they pushed stocks and the euro lower.

The euro slumped from $1.4200 before the comments to trade around $1.4090 by late afternoon in Europe.

Germany's DAX closed down 0.8 percent at 7,114.09 and the CAC-40 in France shed 0.3 percent to 3,917.22 while the FTSE 100 index of leading British shares bucked the trend, trading 0.2 percent higher at 5,880.99.

Sentiment was further hurt by weak U.S. economic data.

The U.S. Commerce Department reported that U.S. economic growth in the first quarter was an annualized 1.8 percent, unchanged from the previous estimate but below market expectations for 2 percent.

There was further disappointment with the news that U.S. weekly jobless claims rose 10,000 to 424,000. The first increase in three weeks was unexpected and provided more evidence that the world's largest economy is generating fewer jobs than would have been hoped at this stage in the recovery.

"The latest U.S. data definitely fit into a growing pattern of softer than expected reports," said Alan Ruskin, an analyst at Deutsche Bank.

Stocks have been weighed down by concerns about the pace of the U.S. recovery as well as worries over Europe's debt crisis, in particular whether Greece will end up having to restructure its mountain of debts.

In the U.S., the Dow Jones industrial average was down 0.3 percent at 12,355.72, while the broader Standard & Poor's 500 index fell 0.2 percent to 1,318.36.

Earlier in Asia, stocks enjoyed a strong day, with Japan's Nikkei 225 stock average boosted by the news that camera maker Canon was to spend as much as 50 billion yen ($183 million) buying back up to 1.2 percent of its shares.

The Nikkei closed 1.5 percent higher at 9,562.05, with Canon up 5.8 percent.

South Korea's Kospi leaped 2.8 percent to end at 2,091.91 while Australia's S&P/ASX 200 rose 1.6 percent to finish at 4,660.20.

Hong Kong's Hang Seng ended 0.7 percent higher at 22,900.79 but mainland Chinese shares slid amid concerns that growth may slow in the latter half of the year. Shanghai's Composite Index dipped 0.2 percent to close at 2,736.53 while the smaller Shenzhen Composite Index lost 1 percent to end at 1,123.15.

Meanwhile, oil prices continued to hover round the $100 a barrel mark. Benchmark crude for July delivery was down $1.31 at $100.01 in electronic trading on the New York Mercantile Exchange on Thursday.

"Expectations are for the figure to be upwardly revised, which would certainly help to quell some of the negative sentiment that has been dogging the markets this week," said Ben Critchley, sales trader at IG Index.

If the growth data disappoint, then it may reinforce concerns about the U.S. economic recovery.

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Kelvin Chan in Hong Kong contributed to this report.