Global markets wait for Fed, Greece

AP News
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Posted: Sep 21, 2011 10:49 AM
Global markets wait for Fed, Greece

Investors were reluctant to buy up stocks Wednesday as they waited to hear if the U.S. Federal Reserve would move to stimulate the U.S. economy and if Greece's creditors would continue to prop up the struggling country.

Global stock markets have taken some encouragement in recent days from signs that Greece is making progress in its talks with its three creditors, the European Union, the European Central Bank and the International Monetary Fund, but that optimism seemed to have run its course by Wednesday.

Before handing over the next installment of Greece's bailout loan _ which it relies on to pay its bills _ the creditors are trying to verify that Athens is making the reforms and budget cuts it promised. The troika confirmed that they will be returning next week, a clear sign that Greece will get its hands on the euro8 billion ($11 billion) of bailout cash that it needs to stay afloat beyond mid-October. A Greek default would send shockwaves throughout the eurozone.

"That's a good sign," said Benjamin Reitzes, an analyst at BMO Capital Markets. "Even so, worries about a potential default persist, and rightly so."

Concerns over a Greek default have rattled stock markets in recent weeks, particularly dragging down the shares of banks believed to hold substantial amounts of Greek debt. An announcement from the European Central Bank on Wednesday that a European bank again tapped its last-resort swap line to the tune of $500 million had little market impact this time as investors' gaze was firmly elsewhere.

In Europe, Germany's DAX was 2.2 percent lower at 5,447, while Britain's FTSE 100 was down 1.4 percent at 5,290. In France, the CAC-40 fell 1.4 percent to 2,943.

The euro, which was hard hit last week by the mounting uncertainty over Greece, has held its own this week amid hopes the country will get the next batch of bailout cash. It was trading just 0.1 percent lower Wednesday at $1.3671.

Wall Street opened fairly flat, with the Dow Jones industrial average down 0.2 percent at 11,382 while the broader Standard & Poor's 500 fell 0.4 percent to 1,198.

While Europe's debt crisis has spooked markets, investors have also fretted about a faltering global economic recovery. The IMF lowered its forecast for global growth on Tuesday to 4 percent for this year and next.

The prospect of lower global demand for energy weighed on oil prices Wednesday. Benchmark oil for October delivery was down 51 cents at $86.41 in electronic trading on the New York Mercantile Exchange.

With signs that the economic recovery is slowing, investors are looking to see what the Fed says later after the completion of its two-day policy meeting. Analysts said markets appeared to be holding out hope for a new injection of stimulus _ possibly by buying up longer maturity bonds.

But Neil Mellor of Bank of New York Mellon cautioned that even if the Fed does act, it's unlikely to be a solution.

"(U.S. Fed Chairman) Ben Bernanke is only too aware of the waning impact of the Fed's few policy tools and the questions that will be raised should he implement a further round of asset purchases whose impact proves as ephemeral as its predecessors," said Mellor.

There are also concerns that any bump from more stimulus has already been "priced in" _ that is, the markets have already seen the gains that the stimulus is meant to inspire.

At any rate, any jump is likely to be short-lived, according to Alan Ruskin of Deutsche Bank.

"The lasting impact on currencies may well be counted in minutes/hours, not days/weeks," said Ruskin.

Earlier in Asia, South Korea's Kospi gained 0.9 percent to 1,854.28 and Australia's S&P/ASX 200 rose 0.8 percent at 4,071.80. But Hong Kong's Hang Seng dropped 1 percent to 18,824.17.

Mainland Chinese shares saw their biggest advance so far this month, after the IMF report said growth would be a robust 9.5 percent this year and 9 percent next year. The benchmark Shanghai Composite Index gaining 2.7 percent to 2,512.96. The Shenzhen Composite Index gained 2.9 percent to 1,102.29.