Doubts over EU crisis deal send shares, euro lower

Wed May 23, 2012 4:39am EDT
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By Richard Hubbard

LONDON (Reuters) - European shares ended a two-day rally and safe-haven assets such as the dollar rose on Wednesday, as investors doubted any new measures to tackle the euro-zone debt crisis would emerge from a European leaders summit and on renewed talk of a Greek exit.

The euro hit a 21-month low and commodities and commodity-linked currencies all slid, while safe-haven demand lifted the dollar index .DXY measured against major currencies to 81.84, its highest level since September 2010.

An informal European leaders summit later on Wednesday is expected to discuss growth-boosting proposals and the idea of a joint euro-zone bond. French President Francois Hollande supports the bond plan, but German Chancellor Angela Merkel is opposed.

"Most are expecting no concrete solution out of the meeting, just a few ideas discussed on how to boost growth with no real commitment to carry them out, while Angela Merkel is almost certain to reject any proposal by Francois Hollande in relation to euro bonds," Craig Erlam, market analyst at Alpari, said.

The single currency fell to $1.2615, below the 2012 low of $1.2624 set in January and its lowest level since August 2010.

Sentiment across the markets was also hit late on Tuesday when former Greek Prime Minister Lucas Papademos was quoted saying Greece had no choice but to stick with a painful austerity program or face a damaging exit from the euro zone, a risk he said was unlikely to materialize but was real.

"The (Papademos) comments were like very strong poison, and the market got flung around by them," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

The comments came after U.S. markets had closed but knocked Asian shares, leaving the MSCI world equity index .MIWD00000PUS down around 0.8 percent at 300.83 points.   Continued...

Visitors look at monitors displaying market indices at the Tokyo Stock Exchange in Tokyo May 18, 2012. REUTERS/Yuriko Nakao