Global stocks, euro rise after Cyprus banks reopen

Thu Mar 28, 2013 1:06pm EDT
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By Ellen Freilich

NEW YORK (Reuters) - Major stock markets recovered, with the benchmark S&P 500 stock index traded above its record closing high, and the euro edged off a four-month low on Thursday, as banks in Cyprus reopened to relative calm following the island's controversial bailout.

Stocks rose on Wall Street, setting the stage for a record close. The record closing high on the S&P is 1,565.15, set on October 9, 2007.

There was little sign of the mass panic some feared would occur as banks reopened in Cyprus following a forced closure lasting nearly two weeks. Banks opened with tight capital controls in place to keep depositors from withdrawing all their money.

Investors "breathed a sigh of relief that the world didn't end when Cyprus reopened its banks," said Patrick Chovanec, chief strategist at Silvercrest Asset Management Group in New York, which has $11.5 billion in assets under management.

The euro rebounded from a recent four-month low against the dollar as month- and quarter-end flows had investors covering bets against the euro. But analysts saw the move as tenuous amid concern the Cyprus crisis and political concerns in Italy could encourage anxious investors to sell euro zone assets and seek the safety of the U.S. dollar.

"The concern is we are five years into the euro zone crisis and still lurching from crisis to crisis," Chovanec said. "These economies need to grow their way out of debt and the question is where will the growth come from?"

Cyprus's 10 billion euro rescue deal with its European partners at the weekend is the first euro zone bailout to impose losses on bank depositors and has raised the prospect of savers withdrawing money from banks.

The decision to include senior debt holders and large depositors in the Cyprus bailout could have a "lasting effect" on the way investors perceive weaker euro area banks, said Barclays analysts Rajiv Setia and Laurent Fransolet in a research note.   Continued...

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