Published January 23, 2012
The stalemate in talks to restructure privately held Greek debt checked gains in European shares and kept the euro steady ahead of a two-day finance ministers meeting that is expected to decide the terms of further aid for Greece.
Private creditors said on Sunday they had come to the limits of the losses they could concede in a Greek debt swap, putting the ball in the court of the EU and the IMF in a tense race against the clock to avoid a messy default.
"It is uncertain what will happen with the restructuring of Greek debt, and after that there will be tough negotiations with the EU and the IMF about the next financing facility," said Niels Christensen, currency strategist at Nordea in Copenhagen.
"The major risk to euro/dollar is to the downside, especially after the small bounce last week which took out some of the riskier short positions," he said.
The euro was barely changed at around $1.2925, remaining below a 2-1/2 week high around $1.2986 hit on Friday, which itself was up nearly 3 percent from a 17-month trough near $1.2624 plumbed on Jan. 13..
The impasse over Greek debt gave an initial lift to safe-haven German government bonds, while yields on 10-year cash bonds eased to around 1.91 percent.
EQUITY INVESTORS EYE ECONOMY
European share markets though were on a different track, led by signs of improved activity in the giant U.S. economy and conscious that any stabilisation in the euro zone debt crisis will make current valuations look cheap.
"What we do see among the major institutional investors is that they're only in the beginning of a shift towards risky assets, towards equities. And we do think that that move still has further to run," Patrick Moonen, ING's senior equity strategist said.
The pan-European FTSEurofirst 300 index of top shares, which notched a fifth straight week of gains last week, was flat in early trade at around 1,043.21 points, underpinned by demand for banking stocks.
The STOXX euro zone banking index was up 2.5 percent helped by reports that France and Germany are calling for a relaxation of global bank capital rules to prevent a credit crunch.
UniCredit, Italy's largest bank by assets, was among the big gainers amid expectations that its 7.5 billion euros capital increase will be almost entirely taken up despite difficult market conditions.
The broader MSCI world equity index, which is up over 5 percent for the year so far, was also barely changed at 314.70 points.
Activity in the earlier Asian session was subdued due to the Lunar New Year holiday which had closed markets in China, Hong Kong, Singapore and South Korea.
In commodity markets Brent crude futures held steady above$110 a barrel on Monday as traders wait to see if European Union governments will agree on new economic sanctions against Iran over its nuclear programme, including plans to phase in an oil embargo.
Gold jumped to a six week high despite the uncertainty over the Greek debt outcome and the growing geopolitical tensions as investors took heart from the steadier euro/dollar rate to buy riskier assets.
Gold has risen more than 6 percent so far this year, but at current levels of around $1,672 an ounce, is down from its high of $1,674.30 seen earlier. Copper was also firmer.