Investors on guard for euro zone debt decision

Wed Oct 26, 2011 7:21am EDT
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By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Financial markets were gripped on Wednesday by a European Union summit pledged to tackle the euro zone's debt crisis but struggling to come up with firm commitments.

Wall Street looked set to open higher, helping lift European stock out of a tight trading range. The euro remained above the relatively firm $1.39 level.

Market expectations that EU leaders will come up with a comprehensive solution to the debt problem have dipped as political wrangling ahead of the meeting has continued.

Investment bank Citi said it was a "numbers game, without the numbers." Bill Blain at Newedge said in a note there was "a scary calm across markets."

While there appears to be broad consensus on the need for around 110 billion euros ($150 billion) to be injected into the European banking system to help it withstand a potential Greek debt default and wider financial contagion, there is little clarity on two other critical parts of the package.

Those are how to scale up the region's rescue fund and how much of a loss private bondholders will take on Greek debt.

"They can't quite pull the rabbit out of the hat yet, though they will probably get something better over time," said Lothar Mentel, chief investment officer at Octopus Investments.

He suggested markets would react badly to any failure to come up with a plan, but there was no early sign of that.   Continued...

<p>A man talks on the phone in front of WIG20 index screen at the Warsaw Stock Exchange September 28, 2011. P REUTERS/Kacper Pempel</p>