Greek debt setback depresses world shares

Tue Jan 24, 2012 7:47am EST
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By Richard Hubbard

LONDON (Reuters) - Worries about the implications of the latest setback in efforts to restructure Greek debt weighed down the euro and shares on Tuesday, overriding positive data showing the region's economy may be headed for a weaker slowdown than many had feared.

The fears threatened to drag U.S. markets lower with futures pointing to a weaker open ahead of a key meeting of the Federal Reserve's policy making committee, and President Barack Obama's last 'State of the Union' address before the next election.

The problems restructuring Greek debt need to be resolved before the country can secure the bailout funds it needs to avoid a disorderly default, which could hurt global economic growth and Europe's fragile banking system.

"Greek debt payments are looming and the situation needs to be resolved. We are concerned about financials that still need to raise capital," said Andrea Williams, who manages $2.1 billion in assets for Royal London Asset Management.

In the latest development, euro zone finance ministers have rejected an offer by private creditors to write down the nominal value of their debt by 50 percent in return for new longer-term bonds paying an interest rate of 4 percent.

The euro was little changed at around $1.3020 after a choppy trading session which had seen it hit $1.3603, its highest level since January 4, as fresh economic data pointed to a recovery in the region's economy.

The Markit flash Eurozone Purchasing Managers' Composite Index (PMI), often seen as a growth indicator, jumped to 50.4 from December's 48.3, its highest reading in four months and easily beating the highest forecast of 49.5 in a Reuters poll.

"The index seems to have bottomed out in October and we've had three months of improvement. Three months we see as a turning point signal, and we are beginning to get a bit more confident," said Chris Williamson, chief economist at data provider Markit.   Continued...

<p>France's Finance Minister Francois Baroin (L) talks with Greece's Finance Minister Evangelos Venizelos (R) at a Eurogroup meeting at the European Union council headquarters in Brussels January 23, 2012. REUTERS/Yves Herman</p>