Greece weighs on Europe, China cut keeps shares steady

[May 11, 2015]  By Marc Jones
 
 LONDON (Reuters) - China's interest rate cut kept shares worldwide near record highs on Monday, though euro zone bourses, bonds and the euro were pegged back by a lack of progress in resolving Greece’s financing woes.

China's third rate cut in six months on Sunday saw Asian markets get the week off to a solid start, but Europe was cautious as euro zone finance ministers prepared to meet in Brussels to try to find a way to keep Greece afloat.

Athens has to repay 750 million euro to the International Monetary Fund on Tuesday. France's Finance Minister Michel Sapin said Monday's meeting would be not be "decisive", though he had no doubt a deal would come eventually.

The jitters however meant most of the euro zone's stock markets <0#.INDEXE> and its bonds started lower, though outperformance by Britain's FTSE after Friday's post-election jump kept the FTSEurofirst 300 about level.

The euro bore the brunt of the angst, falling half a percent to $1.1157, well below the two-month peak of $1.1392 struck last week.

"I get the feeling in the market that there are increasingly more people who are positioning for a Grexit," Credit Agricole's European head of FX strategy, Adam Myers, said.

"More and more people seem to be taking a pessimistic view. That wasn't there even a month ago."

Two-year Greek yields edged up 35 basis points to 20.86 percent and Greek stocks, which rallied sharply last week, were down 2.3 percent.

The nervousness also weighed on Italian and Spanish yields while German 10-year yields also edged up, extending the sharp rise seen over the last couple of weeks.

BULLS IN THE CHINA SHOP

A 3-percent surge in Chinese stocks following the rate cut had helped MSCI's broadest index of Asia-Pacific shares outside Japan climb 0.4 percent, with Japan's Nikkei also up 1.3 percent.

There had been an element of followthrough from the 1 percent gain on Wall Street on Friday after a bounce back in jobs U.S. numbers had lifted sentiment.

That data had also given the dollar renewed energy. It was 0.3 percent higher against other top currencies and up for a third straight session in European trading.

The payrolls figures kept alive the possibility of the Federal Reserve raising U.S. interest rates for the first time in almost a decade as soon as September, although futures markets are still leaning towards December.

The yield on the benchmark 10-year note was at 2.177 percent, compared to its U.S. close of 2.150 percent on Friday. The dollar rose about 0.1 percent against the yen to 119.92.

In addition to Greece's ongoing debt woes, the euro was under pressure after German Chancellor Angela Merkel's conservatives were badly beaten in a regional election.

The dollar's widespread strength also meant the pound fell about 0.3 percent to $1.5407, after it notched up a 10-week high of $1.5523 on Friday.

Among commodities, oil got off to a lackluster start, with Brent flat at $65.39 a barrel after posting its first weekly loss in a month on Friday as the market fretted again about global oversupply.

Gold continued to track sideways at 1,185 an ounce while copper saw only minor lift from China's rate cut. China is the biggest buyer of the metal.

(Additional reporting by Jemima Kelly in London, Lisa Twaronite in Tokyo; Editing by Louise Ireland)

[© 2015 Thomson Reuters. All rights reserved.]

Copyright 2015 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.