European markets fall despite Greece bailout

PARIS, May 3, 2010 (AFP) - The euro and European stocks fell on Monday on scepticism over a bailout for Greece and huge austerity measures Athens is promising, while a shadow of debt contagion hung ominously over Europe.

"Although Greece has had a lifeline from the IMF... the market is not assured that the worst has passed," said Thio Chin Loo, a senior currency analyst with BNP Paribas in Singapore.

The euro fell to 1.3232 dollars on Monday from 1.3300 late on Friday when it had rallied on expectations of a rescue for Greece at the weekend.

European shares also fell in mid-day trading with the Frankfurt DAX shedding 0.17 percent and the Paris CAC losing 0.62 percent. The London stock market was closed for a public holiday.

Eurozone finance ministers and the International Monetary Fund endorsed on Sunday a 110-billion-euro rescue package to keep Greece from a debt default and end a crisis that has rocked the single currency and rattled world markets.

In return for the emergency loans, the Greek Socialist government agreed to implement draconian spending cuts and tax increases to bring its public deficit down from 13.6 percent to under 3.0 percent by 2014.

Asian shares were also down, with Hong Kong ending the day 1.41 percent lower and Sydney shedding 0.46 percent. Tokyo was closed for a holiday.

Shares were down in Spain and Portugal, countries with high public deficits that are considered the most threatened by contagion from the crisis in Greece.

The Madrid stock exchange was down 0.83 percent while shares in Lisbon fell slightly by 0.04 percent. Athens was up, however, gaining 0.03 percent.

The borrowing costs of Spain rose as the interest rate demanded by investors to hold its 10-year bonds rose to 4.052 percent from 4.032 percent late Friday.

The yield, or return, on Portuguese bonds eased, however, to 5.108 percent from 5.126 percent.

And the rate demanded for Greek bonds, which soared above 11 percent last week, fell further to 8.614 percent. The punitive rates demanded by the markets were what forced Greece to go cap in hand to its European Union partners and the IMF.

At Barclays Capital, analysts expressed concern that the conditions for the rescue aid might not be approved by parliaments in contributing eurozone countries.

The IMF could begin transferring funds without the approval of eurozone parliaments, but that did not remove uncertainty about the final total amount and this was weighing on the euro, they said.

Investors were also concerned about regional elections in Germany on May 9, two days after the date on which the German federal parliament is due to adopt the rescue package.

But other analysts said the German legislature would inevitably pass the deal despite deep reservations among lawmakers.

Even if Greece gets the entire rescue package, Golman Sachs economist Erik Nielsen estimates that the country's funding needs are much higher.

"I maintain my estimate that the total financing requirement will be about 150 billion euros over the next three years, so this means that the programme will not be fully financed throughout," Nielsen said.

At Dutch bank ING, interest rate strategist Padhraic Garvey said "the issue now is whether the 110 billion package is enough."

He said that the "bottom line" was that "if Greece spent the lot on upcoming redemptions, coupons (interest payments) and deficit financing there would not be a whole lot left heading into 2012."

He added: "This gives Greece an effective window of 18-24 months, or effectively half to two-thirds of the so-called three-year programme."

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