Global markets relieved by Greece's bailout

[July 23, 2011]  LONDON (AP) -- Relief at a bailout package for Greece drove global shares higher Friday after European leaders made sweeping changes to a rescue fund in an effort to seal larger economies off from the continent's debt crisis.

News of the euro109 billion ($155 billion) package of loans for Athens caused the yields, or interest rates, on the country's bonds to fall sharply. The plan promised to reduce Greece's overall debt burden -- crucial to helping it beat a path out the cycle of borrowing.

But the most radical part of the deal announced Thursday is that it allows countries to tap rescue funds before their borrowing costs reach a critical level, a plan that leaders hope will mean they can shore up faltering economies preventively and stop the march of the crisis.

Those steps were broader than expected, and the rally that began as the deal took shape Thursday continued strongly a day later. The euro also continued its surge, moving to $1.4407.

The FTSE index of leading British shares gained 1.1 percent to 5,962. France's CAC-40 rose 1 percent at 3,855, while Germany's DAX moved up 0.6 percent to 7,333.

Wall Street was also poised to open higher. Dow futures gained 0.4 percent to 12,740, while S&P futures were up 0.3 percent at 1,346. The more cautious gains in U.S. markets may reflect concern that Congress has still not agreed to raise the country's debt ceiling. It has to be lifted by Aug. 2, and though several deals are floating around, it remains unclear which, if any, will win out, making investors skittish.

Though markets were responding positively to the Greek bailout, some analysts tempered their praise, cautioning that it still didn't solve the fundamental problem: that Greece is swimming in debt and extending it more loans could exacerbate the situation.

Greece's mountain of debt "in itself will be sufficient to cast a long shadow over the country's efforts to stabilize its debts these next few years and its efforts will be hostage to the fortunes of the global economy and some fairly optimistic growth projections," said Neil Mellor of Bank of New York Mellon.

And the question still remains whether Greece will be the last country dragged into the crisis.

So far, Ireland, Portugal and Greece have all needed bailouts because investors who considered them bad risks demanded exorbitant rates to lend them money. The fear has been that Italy and Spain could fall into the same trap, and that trying to bail out the eurozone's third- and fourth-largest economies would bankrupt the union.

The yields on Italian and Spanish slid again Friday and were well below the threshold 6 percent mark they had reached earlier.

Still, Benjamin Reitzes, senior economist with BMO Capital Markets, said that there "appears that there's little here to keep markets from eventually putting renewed pressure on Italy or Spain, if they run into any speed bumps."

Earlier in Asia, shares also responded positively to the European package.

Japan's Nikkei 225 stock average advanced 1.2 percent to 10,132.11, Hong Kong's Hang Seng index shot up 2.1 percent to close at 22,444.80. South Korea's Kospi added 1.2 percent to end at 2,171.23, while China's Shanghai Composite Index gained 0.2 percent to close at 2,770.79.

Optimism about the Greek bailout deal drove oil prices toward $100 a barrel.

Benchmark oil for September delivery was up 34 cents to $99.47 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press]

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