Renewed Greek debt fears dampen rise in world markets; euro slides as Greek bond yields surge

Renewed Greek debt fears weigh on world markets

LONDON — European stock markets closed higher Tuesday as investors had their first chance to respond to strong U.S. jobs data last week, but renewed worries about Greece’s debt crisis checked the advance and sent the euro down again.

The FTSE 100 index of leading British shares closed up 33.21 points, or 0.6 percent, at 5,778.10 while Germany’s DAX rose 16.65 points, or 0.3 percent, to 6,252.21. The CAC-40 in France was 19.71 points, or 0.5 percent, higher at 4,053.94.

Wall Street was steady after advancing Monday when U.S. investors had their first chance to respond to last Friday’s news that the U.S. economy added 162,000 jobs in March, its most in over two years — European markets were closed both Friday and Monday for the long Easter weekend.

The Dow Jones industrial average was down 10.81 points, or 0.1 percent, at 10,962.74 around midday New York time while the broader Standard & Poor’s 500 index rose 0.22 point to 1,187.66.

Friday’s U.S. jobs data continued to support sentiment as it stoked hopes that the recovery in the world’s largest economy was strengthening and broadening.

However, the mood was anything but euphoric as investors digested the latest spike in Greek borrowing costs and the consequent slide in the euro.

Hopes that the Greek debt crisis may have been solved — or at least diminished — by an aid package less than two weeks ago appear to have been dashed amid conflicting reports out of the Greek capital.

Though a Greek finance ministry official denied reports that Athens was seeking to revise a deal hammered out last month which would provide Greece with bilateral loans from eurozone countries and the International Monetary Fund to avoid default, investors took fright. They sent the spread between Greek 10-year bonds and equivalent German issues up to 4.06 percentage points at one stage Tuesday afternoon from about 3.60 points earlier in the day, before closing at 3.77 basis points.

The wider the spread, the less confidence in Greek bonds and the higher the interest costs Greece faces when it goes to bond markets to borrow.

“Today’s surge in Greek government bond yields underlines yet again the continued precariousness of the troubled economy’s position,” said Jonathan Loynes, chief European economist at Capital Economics.

“With something close to euro20 billion of debt needing to be refinanced by the end of May, the latest rise in yields is a major blow to hopes that Greece might yet manage to muddle through on its own. Needless to say, none of this is good news for the euro either,” Loynes added.

The euro was back in the doldrums, trading 0.9 percent lower at $1.3369.

The big event later in the U.S. is likely to be the release of the minutes to the last rate-setting meeting of the U.S. Federal Reserve. Investors will be interested to see whether the Fed sounds a more optimistic tone about the U.S. economy and whether there are signs that interest rates will start going up sooner than anticipated.

Particularly interesting will be if anyone joins Kansas City Fed President Thomas Hoenig in voting against the phrase keeping interest rates low “for an extended period.”

Central banks will be at the forefront of attention this week, with both the European Central Bank and the Bank of England set to leave their benchmark rates at 1 percent and 0.5 percent respectively. More interest will be on what the banks say about the recovery from recession.

Earlier, the Reserve Bank of Australia surprised many in the markets by increasing its benchmark rate by a quarter percentage point to 4.25 percent and hinted that further increases are in the offing to rein in inflationary pressures.

The interest rate hike helped Australia’s benchmark S&P/ASX 200 jump 0.9 percent to 4,953.70 and the Australian dollar to advance 0.4 percent higher to $0.9293.

Elsewhere, the pound was down 0.7 percent at $1.5196 as Prime Minister Gordon Brown confirmed that the general election will take place on May 6.

Though his governing Labour Party is behind in all opinion polls, some are showing that the gap between the Conservatives and Labour is narrow and that a so-called hung parliament, where no one party can command a majority in the House of Commons, remains a distinct possibility.

The worry in the markets is that economic policy in a post-election coalition would not be as clear-cut than if a single party emerged triumphant. The worry is amplified if a coalition cannot be concluded and a second election looms.

“The market most vulnerable to the whims of the opinion polls over the next few weeks will be the pound, with the threat of a hung parliament sending shivers down the spines of sterling traders,” said David Jones, chief market strategist at IG Index.

Earlier in Asia, Japan’s benchmark Nikkei 225 stock average fell 0.5 percent, while Indonesia’s main index dropped 0.2 percent. China, South Korea and India were little changed.

Markets in Hong Kong and Thailand were closed for holidays.

Benchmark crude for May delivery was up 24 cents to $86.86 a barrel.

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Associated Press Writer Alex Kennedy in Singapore contributed to this report.