European stocks rise on hopes of Greece deal

[May 31, 2011]  FRANKFURT, Germany (AP) -- European stocks rose Tuesday on hopes that a new aid deal for Greece would keep the country from defaulting on its debts, and as falling unemployment in Germany underlined the strength of the eurozone's largest economy.

The German DAX 30 blue chip index was up 2.1 percent at 7,313 while Britain's FTSE 100 rose 1.1 percent to 6,002.54 after being closed on Monday for a bank holiday. France's CAC 40 traded 1.6 percent higher at 4,005.96.

EU officials offered no details as the talks continued, but top European Central Bank official Lorenzo Bini Smaghi gave a preliminary view of what might come of the talks, sketching out euro60-70 billion in new funding. Half of that would come from measures such as privatization and getting Greek banks to roll over current bond holdings, and the other half from additional loans from the eurozone countries and the International Monetary Fund.

A deal would not solve Greece's deeper economic problems but would remove the fears of an imminent default stoked last week by news the IMF would withhold further loans. "A solution to Greece's medium-term problem isn't immediate but renewed EU efforts should reduce tensions, near term," said analysts at Credit-Agricole.

Greece, currently propped up by last year's euro110 billion package of EU-IMF emergency loans, was expected to return to financing itself on bond markets next year. That now appears unlikely as its economy continues to deteriorate, and the country now needs a second shot of money to pay its debts.

The eurozone's part of the new assistance, some euro20 billion, would still need approval from member countries. Greek banks, however, could probably be pursuaded to renew their holdings of expiring Greek bonds since a default or restructuring could inflict serious losses on their balance sheets.

"While this might be a big ask for foreign debtors, it is much easier to see Greek banks accepting such a deal," said RBS economist Jacques Cailloux.

Such a voluntary rollover would not change bond terms and so would not be considered a default or involuntary stretchout of payments, prospects adamantly opposed by the European Central Bank. The ECB says it could lead to market turmoil and damage the Greek and European banking system.

Germany, by contrast, continued its strong economic performance by reporting a jobless rate of 7.0 percent in May, down from 7.3 percent the month before. The country is enjoying strong growth led by exports and investment in new machinery and equipment. Eurozone inflation, meanwhile, eased slightly in May.

The euro strengthened Tuesday to $1.4408, up 0.9 percent on the day.

U.S. stock futures were mixed after being closed Monday for the Memorial Day holiday. The Dow futures were up 0.1 percent to 12,428 while S&P 500 futures were down 0.3 percent at 1,329.50. 0.9 percent to 1,342.20.

Japan's Nikkei 225 stock average rose 2 percent to close at 9,693.73. Industrial output rose a modest 1 percent in April after a record 15.5 percent drop in March, when the country's economy was slammed by supply disruptions in the wake of the twin disasters. But the government also said factory output -- a key barometer of Japan's economic health -- will pick up speed in the coming months.

South Korea's Kospi jumped 2.3 percent to end at 2,142.27 while Australia's S&P/ASX 200 gained 0.9 percent to finish at 4,708.30. Hong Kong's Hang Sang added 2.2 percent to close at 23,684.13. Benchmarks in Taiwan, Singapore, India and Thailand also gained.

"Across Asia, regional markets are mostly higher, albeit on light volumes, after positive economic data out of Japan," Ben Potter, a research analyst at IG Markets wrote in a research note.

Mainland Chinese shares snapped an eight-session losing streak as the Chinese yuan closed at a record high level of 6.4845 to the U.S. dollar, drawing investors hoping to gain from the Chinese currency's gradual appreciation.

Benchmark oil for July delivery was up $1.77 to $102.36 a barrel at in electronic trading on the New York Mercantile Exchange. The benchmark contract last settled up 36 cents at $100.59 on Friday. Markets in the U.S. were closed Monday for the Memorial Day holiday.

The dollar rose to 81.58 yen from 80.86 yen.

[Associated Press; By DAVID McHUGH]

Kelvin Chan in Hong Kong and Fu Ting in Shanghai contributed to this report.

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