Greek vote shock hammers stocks, euro

Tue Nov 1, 2011 9:10am EDT
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By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Greece's shock decision to hold a referendum on its euro zone bail-out package sent investors scurrying for safer investments on Tuesday, hammering stocks and punishing the euro.

It scotched any immediate expectations for an end-of-year stock rally. Wall Street looks set to open sharply lower.

An unexpected fall in PMI data for China's manufacturers also hurt investor risk-taking sentiment as did Monday's failure of U.S. trading firm MF Global Holdings Ltd due to euro zone debt exposure.

European stocks were down more than 4 percent and MSCI's all-country world stock index .MIWD00000PUS shed 2.3 percent.

Greek Prime Minister George Papandreou's announcement on Monday that he will put Greece's bail-out to a referendum immediately cast doubt on the euro zone's plan to hand Athens 130 billion euros and arrange a 50-percent write-down on its huge debt.

It raised the possibility of a disorderly default on its debt if Greeks vote against the plan.

But more broadly it also threw into chaos the euro zone's wider attempts to stop the debt crisis spreading to more significant economies such as Italy.

Attempts to get countries such as China and Brazil to fund an enhanced euro zone rescue fund, for example, will have hit a major barrier, given that it is not clear that the euro zone's grand compromise agreed last week will stand.   Continued...

<p>A man is reflected on an electronic board displaying stock prices outside a brokerage in Tokyo October 31, 2011. REUTERS/Issei Kato</p>