Stocks rally peters out as Greeks protest

AP News
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Posted: Jun 15, 2011 7:19 AM
Stocks rally peters out as Greeks protest

Global stocks fell again Wednesday over worries over the economic recovery, while the euro dropped sharply on rising concerns over Greece's debt crisis on a day that thousands are protesting on the streets of Athens against the government's latest austerity package.

The rebound witnessed in stock markets in the early part of the week has been largely due to a few corporate deals, but that has seemingly run its course for now and investors are back focusing on the issues that have driven share prices down over the past month or two _ a slowing global economy and Greece's debt crisis.

Figures so far this week have done little to allay fears that the recovery around the world has slowed down sharply. Since stocks are a leading indicator of economic activity in the future, it's unsurprising there's been a reverse.

Further weighing on stocks, particularly in Europe, is the fear that Greece will end up defaulting in some shape or form on its massive debts. That would leave a swathe of banks and financial institutions in peril, and not just in Greece. Moody's earlier warned of the exposure of French banks' exposure to Greece.

In Europe, the FTSE 100 index of leading British shares was down 0.3 percent at 5,787 while Germany's DAX fell 0.4 percent to 7,174. The CAC-40 in France was 0.4 percent lower too at 3,847.

Wall Street was poised for a retreat at the open _ Dow futures were down 0.4 percent at 11,971 while the broader Standard & Poor's 500 futures fell an equivalent rate to 1,279.

There's a raft of U.S. economic data later, including monthly inflation and industrial production figures, that could alter the mood during trading. Weekly oil inventory data could also be crucial in determining whether U.S. crude prices push even further below $100. Benchmark oil for July delivery was down 85 cents to $98.52 a barrel in electronic trading on the New York Mercantile Exchange

The euro was suffering badly too amid fears over Greece's debt crisis as a big demonstration was taking place against the Greek government's new austerity proposals. The measures have to be passed in Parliament if the country is going to get the next tranche of its current bailout facility and if it's going to get another bailout later this month.

However, there are some concerns that the measures may fail to get through and that could potentially result in early elections.

Meanwhile, eurozone finance ministers have so far failed to come up with a united approach on how to get the private sector involved in the second bailout _ a prerequisite of a second bailout.

"Increasingly it looks hard for the Europeans to agree a deal before July," said James Nixon, an analyst at Societe Generale. "The problem is that time just makes it ever more apparent the Greece is failing to implement and achieve its targets under the current program."

By late morning London time, the euro was down 0.9 percent at $1.4311.

Earlier, Japan's Nikkei 225 stock average closed up 0.3 percent to 9,574.32, with Honda Motor Corp. gaining 2 percent a day after it announced that vehicle production in Japan is expected to be back at nearly normal levels by later this month and, outside of Japan, by August or September. Japanese manufacturing was disrupted by a huge earthquake and tsunami on March 11 but analysts say the recovery at Honda and other Japanese automakers has been remarkable.

Meanwhile, South Korea's Kospi rose, by 0.5 percent to 2,086.53 but other markets fell on expectations that China's central bank will go ahead with at least one more interest rate hike this month or next. On Tuesday, China's central bank lifted the ratio of funds banks must set aside as reserves by a half point.

"The reserve requirement increase by China yesterday will be followed by additional rate hikes and raises the probability further of a slowdown in China in the second half of the year," said Derek Halpenny, an analyst at The Bank of Tokyo-Mitsubishi UFJ.

Hong Kong's Hang Seng dropped 0.7 percent to 22,343.77, while the Shanghai Composite Index lost 0.9 percent to 2,705.43.

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Pamela Sampson in Bangkok contributed to this report.