Euro, Stocks Plunge as Greece Seen on Course to Default

Markets Reuters

The euro fell almost 2 percent and share prices tumbled across Asia on Monday as Greece looked set to default on its debt repayment this week, forcing Athens to impose capital controls to halt bank runs.

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With the prospect of Greece being forced out of the euro in plain sight, the common currency fell as much as 1.9 percent to $1.0955 <EUR=>, its lowest in almost a month, and last stood down 1.4 percent at $1.1007.

Against the yen, the common currency dropped more than 3 percent to 133.80 yen, a five-week low.

U.S. stock futures dived almost 2 percent <ESc1> at one point to hitting a three-month low, and last traded down 1.6 percent.

Japan's Nikkei <.N225> fell 2.1 percent while MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> dropped 0.8 percent, drawing little help from more policy easing from China's central bank at the weekend.

Chinese stocks have plunged over 20 percent in the last two weeks, hit by tight liquidity conditions ahead of the quarter-end and uncertainty over the central bank's monetary policy.

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Investors are flocking to safer assets, staggered at huge uncertainty on the future of Europe, as Greece could become the first country to leave the currency bloc after a default.

The 10-year U.S. Treasury yield fell 0.16 percentage point to 2.317 percent <US10YT=RR>.

The yen, which tends to gain at time of financial stress, strengthened against the dollar to hit one-month high of 122.10 to the dollar <JPY=>.

"We are in uncharted territory and European equities, like all markets, will have a difficult time processing this," said Deutsche Bank Managing Director Nick Lawson.

"The market was not positioned for this going into the weekend and the lack of liquidity that has impacted both sovereign and corporate debt markets, as well as equity recently, will exacerbate things.

Cash-strapped Greece looks certain to miss its debt repayment to the IMF on Tuesday as Greece's European partners shut the door on extending a credit lifeline after Greece's surprise move to hold a referendum on bailout terms.

Fear of an imminent default by Greece hit Greek banks, a major buyer of Greek government bills, triggering bank runs at weekend and forcing Prime Minister Alexis Tsipras to announce a bank holiday and capital controls.

Conspicuous by its absence so far from this year's Greek drama has been contagion to other "peripheral" euro nations government bond markets as other European banks have limited exposure to Greece.

Any speculative selling of debt of such countries as Italy, Spain and Portugal will also likely be countered by the European Central Bank, which started buying euro zone sovereign debt from markets in March to shore up the economy.

Yet the perception could change if investors grow more worried about the future of the currency union, as whether Greece can stay within the euro zone after default will be called into a question.

"Financial markets will say 'it's all Greek to me'. Markets will reset their trend until last week and will start the week with risk aversion," Yasunobu Katsuki, senior analyst at Mizuho Securities.

Some investors think Greece's attempt to abandon the austerity program -- and possibly reset its economy through currency devaluation -- could fuel more scepticism toward the euro project among the populace in other euro zone countries.

Gold prices gained 0.9 percent to $1,185.50 per ounce <XAU=> on safe-haven buying, while Brent crude oil futures <LCOc1> fell 1.2 percent to $62.52 per barrel.

(Additional reporting by Jemima Kelly in London; Editing by Diane Craft & Kim Coghill)