World shares lift despite dip in Asia

EUROPEAN shares and the euro gradually recovered yesterday from early losses triggered by the mass downgrade of Euro zone sovereign ratings last week, but they still looked vulnerable amid rising fears of a disorderly Greek debt default.

Markets had already reacted to the downgrades on Friday, and European assets steadied by yesterday afternoon, but activity was limited with US markets closed and the problems in the region’s debt markets continued to weigh on sentiment.

The euro was up 0.3 per cent against the dollar at $1.2673 in late European trade in thin trading but was still seen vulnerable to a test of Friday’s 17-month low of $1.2624.

The FTSEurofirst 300 index of top European shares ended up about 0.8 per cent at 1,025.64 points in low volume while the main Eurozone bank stock index reversed some heavy early losses, on fears the sector could be the next target for rating cuts, to end up 0.3 per cent.

World shares overall recovered from losses seen in Asian trade to be just 0.1 per cent higher.

Growing nervousness saw Europe’s commercial banks park almost half a trillion euros at the European Central Bank, the highest on record, as the mix of debt crisis worries and a recent giant injection of ECB cash left banks awash with money but too scared to lend it.

Market attention is likely to switch today to the state of the Eurozone’s economy with the latest ZEW survey on the health of the giant German economy due.

Germany’s economy contracted by about 0.25 per cent in the fourth quarter as growth slowed in the second half of last year, according to an estimate by the statistics office.

Berlin will cut its forecast for 2012 economic growth to just 0.75 per cent yet expects the jobless rate to decline further to 6.8 per cent on an annual basis a German newspaper, Ruhr Nachrichten, reported yesterday.

Investors also await Chinese GDP data to gauge the outlook for growth in the world’s second-largest economy with forecasts calling for a fourth successive quarterly slowdown in growth to around 8.7 per cent from 9.1 per cent previously.

Debt markets are focused on Greece with senior officials from the government due in Washington for meetings with the International Monetary Fund to try to break a deadlock in debt swap talks that has prompted the fears of an unruly default.