European shares mixed ahead of Europe debt plan

AP News
Posted: Oct 26, 2011 7:06 AM
European shares mixed ahead of Europe debt plan

European shares treaded water Wednesday as traders awaited details of a plan to contain Europe's sovereign debt crisis that would limit damage to the continent's banks.

German Chancellor Angela Merkel looked set to receive wide parliamentary backing for plans to increase the eurozone rescue fund's firepower before she heads to the high-stakes European summit in Brussels.

Following a speech by the chancellor, parliament's lower house is to vote on a resolution thrashed out by Merkel's governing coalition and the main opposition parties.

The EU summit will consider plans to boost the euro440 billion ($600 billion) bailout fund by offering government bond buyers insurance against possible losses and attracting capital from private investors and sovereign wealth funds.

Meanwhile in Italy, Premier Silvio Berlusconi reached an overnight deal with his allies in parliament on emergency growth measures demanded by the European Union, averting an immediate government crisis and giving fresh impetus to the EU summit.

Berlusconi and Northern League leader Umberto Bossi reached a compromise on raising Italy's pension age in late-night talks Tuesday, a point of disagreement that threatened Berlusconi's leadership. Berlusconi's majority in parliament needs the support of the Northern League to guarantee his policies.

Berlusconi plans to deliver a letter with Italy's emergency measures at the summit later Wednesday. A spokesman said the contents are reserved for the summit leaders, but Italian media reported that the measures include new infrastructure spending, with a push for more private investment for strategic projects, the privatization of public entities and property and simplifying rules for companies.

Britain's FTSE 100 was less than 0.1 percent higher at 5,529.37, while Germany's DAX slipped marginally to 6,044.930. France's CAC-40 was up slightly to 3,174.76. Wall Street was headed for a higher opening, with Dow Jones industrial futures 0.5 percent higher at 11,723 and S&P 500 futures rising 0.7 percent at 1,232.50.

In Asia, Japan's Nikkei 225 stock average fell 0.2 percent to close at 8,748.47 while Hong Kong's Hang Seng index added 0.5 percent to 19,066.54. South Korea's Kospi advanced 0.3 percent at 1,894.31.

U.S. markets slid overnight amid concern that disagreements among European Union members could derail a comprehensive debt plan. The Dow Jones industrial average closed down 1.7 percent at 11,706.62 on Tuesday.

Global stock markets have rallied this month on expectations European leaders would be able to prevent contagion from spreading from a possible Greek debt default. Investors are expecting a major recapitalization of private banks that face huge losses from Greek bonds.

Markets could drop sharply if European policymakers emerge from a summit later Wednesday without a credible plan.

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European officials are working to patch together a plan that will prevent banks from taking huge losses if the Greek government defaults on its bonds. A messy default could lead to a credit freeze-up similar to the one in 2008 following the fall of Lehman Brothers.

"The immediate fall-out from a Greek default should be manageable and much less damaging than that which followed the collapse of Lehmans," Capital Economics said in a report. "However, this assumes that policymakers are able to prevent contagion to other, much larger borrowers, such as Italy."

In currencies, the dollar fell to 75.92 yen from 76.07 yen late Tuesday in New York. The euro rose to $1.3923 from $1.3909.

Benchmark crude for December delivery was up 52 cents at $93.69 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.90, or 2.1 percent, to settle at $93.17 in New York on Tuesday.

Brent crude was up 54 cents at $111.46 a barrel on the ICE Futures Exchange in London.


Associated Press writer Alex Kennedy in Singapore and AP researcher Fu Ting in Shanghai contributed to this article.