Greek bailout hopes support European stocks, euro

[May 10, 2011]  LONDON (AP) -- European stock markets and the euro rose Tuesday on hopes that Greece will get another financial bailout to help it avoid a restructuring of its massive debts.

A restructuring -- a renegotiation of existing debt deals -- could have huge repercussions for Europe's financial system, causing vast losses at banks holding Greek bonds.

That's why EU policymakers, including at the European Central Bank, have insisted that a restructuring -- favored by many economists -- would not be the panacea to Europe's or Greece's debt crisis.

Lorenzo Bini Smaghi, a member of the European Central Bank's executive board, stood by that position in a speech on Tuesday.

As a result, there's growing talk in the markets that Greece will end up getting further financial help from its partners in the EU and the International Monetary Fund.

More funds on top of last year's euro110 billion ($158 billion) package could give Greece more time to convince markets that it is able to get a handle on its debts. Greece's current plan to return to bond markets in 2012 for its borrowing needs is considered unrealistic.

All eyes are slowly turning towards next week's meeting of eurozone finance ministers in Brussels. Expectations are high in the markets that something will have to be announced to calm frayed investor nerves.

"What seems to be clear is that no restructuring of any form will be announced next week on the private debt side," said Jacques Cailloux, European economist at Royal Bank of Scotland. "It remains to be seen whether the announcement next week will already have a financial commitment attached and it is possible that a final decision will not come until June."

German Chancellor Angela Merkel said Tuesday that she needs to await reports from an international assessment mission currently in Greece. "Only then can I decide what, and whether anything needs to be done," she said.

"The market response to these upcoming policy announcements will be commensurate to the level of political and more importantly financial commitment to support Greece," Cailloux said.

The uncertainty over Greece's future have undermined European stocks and the euro, with sentiment hardly helped by a downgrade of the country's debt by credit ratings agency Standard & Poor's.

Stocks recovered strongly on Tuesday as the restructuring fears faded somewhat, though the euro was flat on the day at $1.4360.

In stock markets, Germany's DAX was up 1.4 percent at 7,516 while the CAC-40 in France rose 1.3 percent to 4,061. The FTSE 100 index of leading British shares was up 1.1 percent at 6,008.

Wall Street was poised for a solid opening -- Dow futures were up 0.3 percent at 12,673 while the broader Standard & Poor's 500 futures rose 0.4 percent at 1,348.

"With a quiet afternoon on the economic calendar, U.S. shares may struggle to find direction but the recovery tone that has been in place since last Friday's payrolls could well see the Dow add to Monday's modest gains," said Yusuf Heusen, a senior sales trader at IG Index.

Earlier in Asia, Japan's Nikkei 225 closed up 0.3 percent to 9,818.76, with shares of Chubu Electric Power Co. rising 1.9 percent after the Japanese utility agreed to a government request to shutter three nuclear reactors at the Hamaoka coastal power plant while it builds a seawall and improves other tsunami defenses.

The request came after Japan's 54 reactors were checked for earthquake and tsunami vulnerability after the March 11 natural disasters that crippled the Fukushima Dai-ichi nuclear plant in northeast Japan. The Hamaoka facility sits above a major fault line and has long been considered Japan's riskiest nuclear power plant.

Mainland Chinese shares advanced, with the benchmark Shanghai Composite Index gained 0.6 percent to 2,890.63, and the Shenzhen Composite Index of China's smaller, second exchange added 0.6 percent, to 1,210.23.

Markets in South Korea and Hong Kong were closed for a holiday.

Oil prices gave back some of Monday's big gains. Benchmark crude for June delivery was down$1.39 to $101.16 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $5.37 to settle at $102.55 on Monday.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this report.

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