World markets down ahead of expected Greece deal

[May 01, 2010]  LONDON (AP) -- World stock markets eased Friday despite strong U.S. economic growth data as investors warily awaited the completion of a support package to keep Greece from defaulting on its debts.

In Europe, the FTSE 100 index of leading British shares closed down 1.1 percent, at 5,553.29 while France's CAC-40 index fell 0.6 percent to 3,816.69. Germany's DAX was fell 0.1 to 6,135.70.

On Wall Street, the Dow Jones industrial average was down 0.2 percent around noon New York time, at 11,148.43 while the broader Standard & Poor's 500 index fell 0.3 percent, at 1,202.92.

Once again, most attention in the markets remains on the Greek debt crisis -- while most investors expect a bailout loan package to be agreed with the European Union and the International Monetary Fund this weekend, there have been so many shocks and delays in this crisis that they remain reluctant to get too euphoric.

"The situation remains tense with bonds and equities likely to whipsaw until a formal arrangement has been negotiated," said Jeremy Batstone-Carr, director of private client research at stockbrokers Charles Stanley.

Greece has to find euro8.5 billion to pay off debtors on May 19 and the way the bond markets are at the moment -- especially after Standard & Poor's downgraded the country's debt to junk status earlier this week -- Greece must rely on getting that money from its 15 partners in the eurozone and the International Monetary Fund.

Mounting fears that Germany might hold up its share of the overall euro45 billion bailout package agreed earlier this month was the catalyst to this week's market turmoil.

The consensus in the markets now is that a much more extensive package will be offered to Greece than the original one-year euro45 billion deal agreed -- that has helped to shore up confidence in the markets and Europe's main stock indexes have advanced while the euro has clambered off its recent lows.

Even if Greece gets the money, it has years of painful austerity ahead -- Greek Prime Minister George Papandreou said Friday that more needs to be done.

"One senses that the next iteration of the Greek saga will not be the last one, but the likelihood is it will be helpful from a market perspective," said Daragh Maher, an analyst at Credit Agricole.

"The early indications are that it should be reasonably constructive for risk assets and provide some temporary relief, at least, for the beleaguered high-yielding European bond markets and the euro," Maher added.

Hopes of an imminent agreement has helped ease the pressure on the euro, which earlier this week slid to a one-year low against the dollar -- by late afternoon London time, the euro rose 0.4 percent to $1.3301.

U.S. stocks were left largely unaffected by news that the U.S. economy grew at an annualized rate of 3.2 percent in the first quarter of the year -- that was more or less in line with market expectations but way down on the 5.6 percent recorded in the fourth quarter of 2009.

Though the growth rate was lower, analysts took heart that the composition was more encouraging -- instead of the restocking behind the previous quarter's rise, the first quarter increase was largely due to a rebound in consumer spending -- considered vital for a sustained recovery.

The figures confirm that the U.S. economy has now grown for three straight quarters but the markets are not expecting the U.S. Federal Reserve to start raising interest rates anytime soon given subdued inflationary pressures, high unemployment levels and flat income growth -- low rates are good for stocks as well as bonds.

"So the interest rate backdrop of itself should not derail the recovery in risk assets but the GDP report is more bond-friendly than equity friendly I think," said Neil Mackinnon, global macro strategist at VTB Capital.

Earlier in Asia, Japan's Nikkei 225 stock average rose 132.61 points, or 1.2 percent, at 11,057.40, while Hong Kong's Hang Seng rose 1.6 percent to 21,106.48 and South Korea's main benchmark added 0.8 percent to 1,741.56.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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