Investors fret after Greek, French votes
By Richard Hubbard
LONDON (Reuters) - Greek and French election results rattled global investors on Monday by undermining confidence in the region's plans to cut spending and tackle its debt crisis, sending the euro to a three-month low.
European shares also initially traded lower, with Greek stocks down 6.4 percent .ATG, but reaction was muted with the UK market closed for a holiday. Wall Street stocks were expected to reflect the weaker tone when they being trading .N.
Investors sold bonds of other weaker euro zone member states after the two pro-bailout parties in Greece failed to win a parliamentary majority, rekindling fears over the country's future in the single currency.
"The Greek election outcome is the ultimate Greek tragedy. Not having a cohesive government means the IMF will not release further funds. Without those funds, Greece will have to leave the euro zone," Louis Gargour, chief investment officer of London-based hedge fund LNG Capital, said.
After the more widely expected result, French Socialist Francois Hollande's victory over Nicolas Sarkozy, demand for the government's debt pushed the yield on 10-year bonds to 2.79 percent, its lowest in seven months.
But the gains may be only temporary and much will depend on how the new French President handles relations with Germany's Chancellor Angela Merkel over German-led austerity measures, which the markets favor.
"Hollande's victory marks a turning point in the EU policy debate," Tristan Cooper, sovereign debt analyst at Fidelity Worldwide Investment, said.
"Despite professed sympathy for the growth dilemma, markets will punish any government that strays from its fiscal targets," Cooper said. "Spain and the Netherlands were recently at the sharp end of the stick." Continued...