Markets volatile as investors await Greece news

AP News
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Posted: Sep 13, 2011 9:56 AM
Markets volatile as investors await Greece news

Greece's debt crisis continued to be the main driver in markets during volatile trading on Tuesday as investors worried that the country might suffer a chaotic default.

Investors remained hugely concerned that Greece may not get the next batch of bailout money, meaning it would run out of money as soon as next month.

However, there were some signs Tuesday that European leaders would do what it takes to avoid such a scenario. German Chancellor Angela Merkel, for one, indicated the debt-ridden country was making progress in meeting the demands of international creditors.

Merkel sounded a note of optimism regarding Greece's chances of getting the next installment of bailout cash from the so-called troika _ the European Commission, the European Central Bank and the International Monetary Fund. Representatives from the three organizations are due back in Athens this week.

"Everything that I hear from Greece is that the Greek government has hopefully understood the signs of the time and is now doing the things that are on the daily agenda," Merkel said on rbb-Inforadio. "The fact that the troika is returning means that Greece has started doing some things that need to be done."

Merkel also warned of the perils of an "uncontrolled" Greek bankruptcy.

News that Greek Prime Minister George Papandreou will hold a teleconference with French President Nicolas Sarkozy and Merkel helped spurred hopes that some solution may emerge.

"Markets are tired of talk and rumour on how to get Europe back on its feet and are still waiting for concrete results," said Ben Critchley, a sales trader at IG Index.

In Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 5,141 while Germany's DAX rose 1 percent to 5,125. France's CAC-40 was up 0.1 percent at 2,856, underperforming its peers as investors continued to fret about the financial health of its banks.

U.S. stocks opened lower but a little better than expectations _ the Dow Jones industrial average was down 0.6 percent at 10,989 while the broader Standard & Poor's 500 index fell 0.4 percent at 1,158.

Even if Greece gets its next installment of euro8 billion ($11 billion), the markets think the country will have to concede defeat on its debts some time over the next year.

"Should Athens meet all its payment obligations over the coming six months, markets once again price in an almost 70 percent likelihood of the country defaulting over the following six months," said Lutz Karpowitz, an analyst at Commerzbank.

"The possibility of Greece not defaulting over the coming 12 months is therefore as low as 10 percent," he added.

Those fears are starting to impact on the euro, which has been resilient over the last few months on signs the European Central Bank was raising rates. Last week's indication from the bank that rate hikes are off the agenda has prompted a reassessment, and allowed the Greek default fears to start driving the currency lower. On Monday, it struck a seven-month low below $1.35.

It was trading steadily Tuesday around the $1.3645 mark.

Earlier, the euro was supported briefly by Italy's confirmation that its finance minister had discussions with China's sovereign wealth fund last week amid speculation Rome is looking to persuade Beijing to buy its bonds.

Japan's benchmark Nikkei 225 index gained nearly 1 percent to close at 8,616.55 while Australia's S&P/ASX200 index rose 0.9 percent to 4,072.70.

Mainland Chinese investors were preoccupied Tuesday with domestic concerns, fretting over further credit tightening to counter inflation, which is hovering near three-year highs. The benchmark Shanghai Composite Index lost 1.1 percent to 2,471.31. The smaller Shenzhen Component Index dropped 1.6 percent to 1,077.13.

Meanwhile, oil prices recovered some ground. Benchmark oil for October delivery was up $1.54 to $89.74 in electronic trading on the New York Mercantile Exchange.

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Elaine Kurtenbach in Shanghai contributed to this report.