Markets wobble as eyes stay fixed on euro talks

Julian Harris
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MARKETS took a hit yesterday from strife between key bailout providers to crisis-struck Greece, yet later recovered as hopes rose that Spain might finally request a full sovereign bailout.

The euro sank to a two month low, touching $1.266, as the International Monetary Fund (IMF) admitted differences of opinion between it and the Eurogroup of finance ministers from euro area states.

“We clearly have different views,” said Christine Lagarde, head of the IMF. “What matters at the end of the day is the sustainability of Greek debt so that country can be back on its feet.”

Splits have also emerged this week over the means of ensuring that Greece’s debts become sustainable, casting doubt over talks to deliver the country new tranches of bailout cash.

Also contributing to bearish feeling was a Zew indicator of economic sentiment in Germany, which dipped by 4.2 points this month to an index score of -15.7 points.

Investors were relieved yesterday, however, as Greek authorities raised most of the funds needed to refinance €5bn of treasury bills this week and avoid a default.

It expects to bring in the rest by tomorrow.

Greece’s debt agency, PDMA, sold €4.062bn of one- and three-month treasury bills.

Following its early dip, the euro recovered to around $1.2707.

Stocks also pared earlier losses. The MSCI world equity index rose 0.01 per cent to 322.81, after hitting its lowest point since early September.

And in Spain the IBEX index rallied 1.7 per cent, while its bond yields eased slightly amid speculation that the government might be close to asking for a sovereign bailout.

Yet in the US the Dow Jones ended the day down 0.46 per cent at 12,756.18 as fresh data acting as a reminder of the government’s mammoth deficit and debt levels, and signs emerged that Republicans and Democrats remain obdurate over moves to avoid a so called fiscal cliff hitting the economy in January.

The US public deficit climbed to an eye-watering $120bn last month, up 22 per cent from a year earlier.

Each year the US state is spending over $1 trillion more than it collects.