Greece leads markets higher amid EU rescue hopes

By PAN PYLAS

posted: 2 HOURS 19 MINUTES AGO

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LONDON -Greek shares led world markets higher Wednesday amid mounting hopes that German opposition to a European Union financial rescue package for the heavily indebted country is waning.

European markets climbed higher following big gains Tuesday on Wall Street and an earlier advance in Asia.

The FTSE 100 index of leading British shares was up 29.97 points, or 0.6 percent, at 5,141.81 while Germany's DAX rose 49.54 points, or 0.9 percent, at 5,547.80. The CAC-40 in France was 30.58 points, or 0.9 percent, higher at 3,643.34.

Greek shares led the advance in Europe, with the main composite index up 4.4 percent at 1,979. Stock markets in Spain and Portugal — two countries with similar problems to Greece — were also 2 percent higher.

The more optimistic tone in stock markets this week has largely arisen from hopes that Thursday's meeting of European Union leaders in Brussels will agree some sort of financial support for Greece, which has been struggling to reassure markets that it can get a grip on its massive borrowings amid a nationwide strike Wednesday.

EU leaders will be joined by European Central Bank president Jean-Claude Trichet and the debate is likely to center on how to ring-fence the problems in Greece so they don't start to undermine other countries as well as the euro.

"If, and it remains a reasonable 'if' this happens tomorrow, the commitment will have to be strong enough to placate markets while retaining a pretence that this is not tantamount to a bailout," said Daragh Maher, an analyst at Calyon Credit Agricole.

"In the end, the EU either directly or through a promise of conditional support may well end up being Greece's saviour, but many will wonder if this will leave this knight in shining armour looking a little tarnished," he added.

Crucial to any deal is the position of Germany, the eurozone's biggest economy, and the signs are that there's a growing acceptance within Chancellor Angela Merkel's government that Germany will have to step up to the plate to stave off this crisis that could spread like wildfire.

Germany is reportedly looking at ways to help Greece by either backing a plan for a loan package from the EU or some sort of guarantee of Greece's debt position.

Hopes that Germany will back a rescue deal have also given Greek bond prices some support. On Tuesday the spread between Greek and German 10-year yields dropped by 47 basis points — a clear sign that investors think a default is less likely.

"The respite provided by the temporarily improving conditions in the bond markets gave some much needed impetus for equities, which in recent sessions have wanted to give up the ghost," said David Buik, markets analyst at BGC Partners.

The euro has also managed to steady and was trading flat at $1.3790.

Earlier in Asia, Japan's Nikkei 225 index closed 0.3 percent higher at 9,963.99 while Hong Kong's Hang Seng rallied 0.6 percent to 19,922.22.

Australia's benchmark gained 0.2 percent to 4,513.40 while China's Shanghai index advanced 1.1 percent to 2,982.50, helped by strong trade figures for January — indicating a recovery in both global demand and Chinese consumption is on track.

"We can see China's trade has entered a stable stage," said Shanghai Securities economist Hu Xiaoyue. "Unless there's another round of the financial crisis, China's export recovery is well on track and won't see a double dip."

Markets in India, Taiwan, Malaysia and Indonesia also gained.

Only South Korea bucked the regional trend with the Kospi index slipping 0.37 point, less than 0.1 percent, to 1,570.12.

Wall Street was poised for a flat opening after big gains on Tuesday when the Dow Jones industrial average rose 150.25 points, or 1.5 percent, to 10,058.64, its biggest percentage gain since Nov. 9. The broader Standard & Poor's 500 index rose 13.78, or 1.3 percent, to 1,070.52, while the Nasdaq composite index rose 24.82, or 1.2 percent, to 2,150.87.

Oil prices fell modestly with benchmark crude for March delivery down 24 cents at $73.51 a barrel after U.S. crude supplies rose last week.

2010-02-10 06:12:53