Greek deal relief tempered by hurdles ahead

Tue Feb 21, 2012 8:06am EST
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By Richard Hubbard

LONDON (Reuters) - The euro turned lower after an initial jump and European stocks fell Tuesday after a long-awaited agreement on a second bailout for Greece removed the threat of a disorderly bond default but left markets fearful of further problems ahead.

The broad FTSEurofirst index .FTEU3 of top European companies was down 0.6 percent after touching seven-month highs Monday, although U.S. stock index futures pointed to gains when markets reopen after the Presidents Day holiday.

The euro was down 0.2 percent at $1.3220, after initially jumping more than half a cent against the U.S. dollar, to a two-week high of $1.3293, on relief over the Greek deal.

"The news of the Greece deal was reassuring and welcome but not enough to take the euro out of its recent range," Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank said.

"The market will remain skeptical about implementation."

After 13 hours of talks, euro zone ministers finalized a 130-billion-euro ($172 billion) deal for Greece in the early hours of Tuesday morning by forcing Athens to commit to unpopular budget cutbacks and private bondholders to accept deeper losses on their holdings.

While the deal averts a default by Greece next month, which potentially could have disrupted financial markets worldwide, it has left major doubts over the prospects for implementation given looming elections in April and rising social unrest on the streets of Athens.

"Greece is increasingly trapped in a vicious circle where ever more austerity comes with an ever higher price tag on growth. Consequently, implementation risk will remain high," analysts at French bank Societe Generale said in a note.   Continued...

Traders work at their desks at the Frankfurt stock exchange February 1, 2012.  REUTERS/Alex Domanski