Greek woes hurt global markets

Worries about the implications of the latest setback in efforts to restructure Greek debt hurt the euro and global share markets today, overriding fresh data showing Europe's economy may be headed for a weaker slowdown than many had feared.

US stocks fell at the open and analysts pointed to a short-term top in equity markets after the S&P 500 posted gains in five straight sessions.

The Dow Jones industrial average fell 44.05 points, or 0.35 per cent, at 12,664.77. The Standard & Poor's 500 Index lost 4.05 points, or 0.31 per cent, at 1,311.95. The Nasdaq Composite Index dropped 11.88 points, or 0.43 per cent, at 2,772.29.

"It's back to worrying about whether Greece is heading for a soft, messy or technical default," Peter Cardillo, chief market economist at Rockwell Global Capital in New York said.

A deal to restructure Greek debt must be agreed before the country can secure the bailout funds it needs to avoid a disorderly default, which could hurt global economic growth and Europe's fragile banking system.

In the latest development, euro zone finance ministers rejected an offer by private creditors to write down the nominal value of their debt by 50 per cent in return for new longer-term bonds paying an interest rate of 4 per cent.

The euro was down about 0.5 percent against the dollar at $1.2960 after a choppy trading session which saw it hit a high of $1.3603, a level not seen since Jan. 4, when fresh economic data pointed to a recovery in the region's economy.

The Markit flash Eurozone Purchasing Managers' Composite Index (PMI), often seen as a growth indicator, jumped to 50.4 from December's 48.3, its highest reading in four months and easily beating the highest forecast of 49.5 in a Reuters poll.

"The index seems to have bottomed out in October and we've had three months of improvement. Three months we see as a turning point signal, and we are beginning to get a bit more confident," said Chris Williamson, chief economist at data provider Markit.

A reading above 50 indicates economic expansion and below this level, a contraction.

"Although we still see downside risks for activity in early 2012, today's report suggests that the EMU (European) economy is not going to fall in a deep recession near-term," Annalisa Piazza, market economist at Newedge said.

European share markets however spent the session in negative territory, due mainly to weakness in financial stocks, with the pan-European FTSEurofirst 300 index of top shares off 0.85 per cent at around 1,039.40 points.The Stoxx Europe 600 Banks index was nearly 2 per cent down on worries about further debt writedowns for the sector.

Investor sentiment was also hurt by results from German conglomerate Siemens, a bellwether for Europe's manufacturing industry, which showed a 23 percent decline in its first-quarter core operating profit, missing the most pessimistic analysts' forecasts.

Safe-haven German debt prices fell after PMI data also showed Germany's manufacturing sector grew in January for the first time since September, but later climbed as the Greek worries drove up demand.

German government bond futures were about 23 ticks higher on the day at 137.75. Benchmark 10-year German yields were slightly easier at 1.96 per cent.

Debt markets are also growing nervous about the outlook for Portugal, the next weakest euro zone member, whose bond yields have been rising steadily over the past week.

The MSCI world equity index was down about 0.5 per cent at 314.54 point after another quiet day in Asia where many markets are still closed for the Lunar New Year.

Reuters