Greek cutback plan helps calm world stock markets; euro steadies

Greek cutbacks help calm world markets

LONDON — World markets pushed higher Wednesday as investors cheered the latest batch of Greek budget cuts as well as upbeat U.S. economic surveys on the jobs market and services sector.

In Europe, the FTSE 100 index of leading British shares was up 35.56 points, or 0.7 percent, at 5,519.62 while Germany’s DAX rose 37.78 points, or 0.7 percent, to 5,814.34. The CAC-40 in France was 25.71 points, or 0.7 percent, higher at 3,837.63.

On Wall Street, the Dow Jones industrial average was up 30.76 points, or 0.3 percent, at 10,436.74 soon after the open while the broader Standard & Poor’s 500 index rose 3.31 points, or 0.3 percent, to 1,121.62.

Markets had been trading on a steady tone all day amid hopes of a solution to Greece’s financial crisis after the government unveiled more harsh measures to bring down its borrowing levels.

Buying momentum emerged after the ADP payrolls firm reported that the decline in private sector employment in the U.S. slowed to 20,000 in February from 60,000 the previous month.

The figures came ahead of Friday’s government nonfarm payrolls report, which often sets the market tone for a while.

Further encouragement came with a survey showing that the U.S. service sector grew by more than anticipated in February and by its fastest rate in more than two years.

The Institute for Supply Management said its index measuring service industries rose to 53 in February from 50.5 in January. The increase was more than anticipated — the consensus in the markets was for a far more modest rise to 51. Any reading above 50 indicates expansion.

“Encouraging but, like many other surveys covering sectors other than manufacturing, it points to a modest recovery at best,” said Paul Ashworth, senior U.S. economist at Capital Economics.

The main focus in the markets continued to be centered on Greece as the government announced a further euro4.8 billion ($6.5 billion) in spending cuts to soothe fears that it could not get its budget deficit down.

Prime Minister George Papandreou said the measures were “not taken out of choice but out of necessity” and “were necessary for the survival of our country and our economy, and for Greece to escape the whirlwind of speculators.”

The new austerity package comes after European Union officials bluntly told Athens to make deeper spending cuts. Ratings agencies have also warned of more damaging downgrades if Greece is unable to rein in its debt.

The early reaction has been broadly positive, in particular in the bond markets where the spread between Greek and German ten-year bond yields fell to 2.8 percentage points.

Analysts said Greece now had a window to launch a bond issue over the coming days as it tries to rollover its debt moutain — most think it will be worth around euro5 billion.

The pressure on Greece hasn’t ended and investors will be closely monitoring this Friday’s meeting between Papandreou and German Chancellor Angela Merkel to see if any further EU support is provided to Greece.

Jane Foley, research director at Forex.com, said the continued fall in Greek bond yields this week is “a sign that the market believes that the EU has little option but to ensure that Greece is not forced to default on its debt.”

Though a prospective bailout alongside the more savage budgetary cuts have brought some calm to the markets, there are clear question-marks about the government’s ability to push through the measures.

“The proof of the pudding is in the eating; there is still a very long way to go before Greece’s budget deficit is anyway near the 3 percent of GDP limit outlined in the Maastricht Treaty, thus neither Greece nor the euro is out of the woods yet,” said Foley.

The euro enjoyed a brief rally in the wake of the Greek budget cuts announcement, rising 0.3 percent to $1.3655.

Earlier in Asia, Japan’s Nikkei 225 stock average edged up 31.30 points, or 0.3 percent, to 10,253.14.

South Korea’s Kospi was up 0.5 percent at 1,622.44 but Hong Kong’s Hang Seng lost 0.1 percent to 20,876.79.

Elsewhere, Australia’s market rose 0.7 percent, lifted by news the local economy grew at its fastest pace in nearly two years, signaling that the country has emerged from the worst of the global crisis.

Shanghai’s market was 0.8 percent higher.

Benchmark crude for April delivery was up 55 cents to $80.23 a barrel. The contract rose 98 cents to settle at $79.68 on Tuesday.

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.