Stocks, euro slide amid Greece EU bailout doubts

Greek PM survives parliamentary confidence vote with fate of nation's deal on a euro zone debt bailout and the global economy in the balance.

By REUTERS
November 5, 2011 01:06
4 minute read.
Greek Prime Minister Georges Papandreou

Georges Papandreou_311. (photo credit: Reuters)

NEW YORK - Global stocks and the euro fell on Friday as new doubts about Europe's bailout package and worries over the outcome of a key vote in Greece overshadowed signs of an improving US labor market.

Greek Prime Minister George Papandreou won a parliamentary confidence vote late Friday night, avoiding snap elections which would have torpedoed Greece's bailout deal and inflamed the euro zone's economic crisis.

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Papandreou's socialist government won with all his party lawmakers in the 300 member parliament supporting the government, but his term as prime minister appeared close to an end.

Earlier Papandreou called for a new coalition government to approve the 130 billion euro bailout deal which is vital for saving the country from bankruptcy and tackling the euro zone's economic crisis, and signalled he was ready to stand down.

Papandreou told parliament before the vote that he would go to the Greek president on Saturday to discuss formation of a broader-based government that would secure the euro zone bailout, Greece's last financial lifeline, adding that he was willing to discuss who would head a new administration.

The bid for safe-haven assets rose, with government debt gaining after German Chancellor Angela Merkel said few countries in the Group of 20 leading economies had committed to providing more resources for a euro zone rescue fund.

Merkel's comment eclipsed relief over the decision by Greece on Thursday to ditch controversial plans to hold a referendum on its bailout, a development that initially had calmed fears of an imminent sovereign debt default.

The assessment also highlighted the fragility of the deal reached to rescue Greece. The deal aims to increase the euro zone's rescue fund to give it firepower of 1.0 trillion euros.

US unemployment numbers fail to lift market

Signs of an improving US labor market failed to lift the market. Labor Department data showed US hiring slowed in October, but the unemployment rate hit a six-month low and job gains in the prior two months were stronger than previously thought.

Trading has been volatile on quickly changing news from Europe. The US S&P 500 has registered daily swings of more than 1.5 percent this week. The benchmark index, which posted its best month in 20 years in October, posted its first down week in five.

"There's too much uncertainty going on. What Greece has taught us this week is that just when you think things are certain, they're actually not," said Camilla Sutton, chief currency strategist, at Scotia Capital in Toronto.

The Dow Jones industrial average closed down 61.23 points, or 0.51 percent, at 11,983.24. The Standard & Poor's 500 Index fell 7.92 points, or 0.63 percent, to 1,253.23. The Nasdaq Composite Index slid 11.82 points, or 0.44 percent, to 2,686.15.

Stock sectors most exposed to weakness in European banks and tied to growth, such as industrials, financials, materials and energy, were among the weakest.

Shares of daily deals site Groupon Inc rose 30 percent in their stock market debut, but at least some of the early trading exuberance may have come from limiting the fraction of the company that was sold.

World stocks as measured by the MSCI all-country world index pared losses to trade near break-even on strength in emerging markets. EPFR Global reported $3.5 billion flowed into emerging market equity funds in the week ended Wednesday, the second-largest inflow this year.

In Europe, the FTSEurofirst 300 index of top regional shares slid 1.0 percent to 980.01, erasing early gains. The index posted its first weekly loss in six weeks.

Berlusconi turns down IMF funding

Italian banks UniCredit and Intesa SanPaolo, heavily exposed to Italy's sovereign debt, fell 6.6 and 4.8 percent, respectively.

Italian Prime Minister Silvio Berlusconi, who is facing pressure to resign, turned down an offer of funding from the International Monetary Fund, which has placed the country under supervision as it struggles with its debt mountain.

"The Italian bond yield is the only game in town. If this trend continues, we've got serious problems. It's not sustainable. There's no reason to take any more risk at the moment," said David Coombs, fund manager at Rathbone Brothers, which has 15.2 billion pounds ($24.2 billion) under management.

The euro slid against the dollar as uncertainty persisted about the EU's bailout program. The euro fell 0.3 percent to $1.3770.

The benchmark 10-year U.S. Treasury note rose 10/32 in price to yield 2.04 percent, while the December Bund future settled up 73 ticks.

Italian two-year government bond yields jumped and the spread of Italian 10-year yields over Bunds hit a new lifetime high.

Crude oil prices rose in choppy trade.

Brent futures rose $1.14 to settle at $111.97 a barrel. U.S. light crude futures rose 19 cents to settle at $94.26 a barrel.

US gold futures for December delivery settled down $9 at $1,756.10 an ounce.


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