Cyprus bailout lifts shares, euro, oil

Mon Mar 25, 2013 8:00am EDT
 
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By Marc Jones

LONDON (Reuters) - European shares, the euro and oil rose, while safe-haven German government bonds and gold fell on Monday, after Cyprus agreed a bailout to save its banking system and keep it in the euro.

In the early hours of Monday morning Cypriot policy-makers reached a deal with the European Union, the European Central Bank and the International Monetary Fund to shut down its second largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro ($13 billion).

Without the agreement the ECB said it would have cut off emergency funds to the banks, a move that would have triggered a meltdown of Cyprus's banking system and potentially pushed the country out of the euro currency bloc.

Investors breathed a sigh of relief that although the move to seize individuals' savings had introduced a new dimension to the euro zone crisis, the problems had not been allowed to escalate further.

Euro zone banking shares rallied as much as 2.4 percent at one point to lead a rally on global stock markets that reached as far as Australia.

By 7:15 a.m. EDT Europe's top shares .FTEU3 were up just under 1 percent and had recouped most of last week's losses that were due to concerns Cyprus's problems could impact other struggling euro members.

In the region's crisis-sensitive bond markets, the price of German 10-year Bunds, which moves down as yields go up, also fell as the deal brought relief to riskier assets.

"No one really wants to be seen as dropping a country out of the euro zone. That's the signal from this deal," said Elwin de Groot, senior market economist at Rabobank.   Continued...

 
A trader looks at his screen on the IG Group trading floor in London March 18, 2013. REUTERS/Neil Hall