Investors cautious as lenders seek more steps after Greece deal

Saturday, 11 February 2012 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The euro and shares pulled back on Friday as investors remained concerned about Greece’s commitment to debt restructuring, even after it struck a long-awaited deal on fiscal reforms to secure crucial funding.

Greek political leaders clinched a deal on austerity measures and reforms needed for a second international bailout in two years, and a debt swap deal between Greece and its private bond holders was practically finalised.

But Eurogroup chairman Jean-Claude Juncker set three conditions, saying the Greek parliament must ratify the package, a further 325 million euros of spending cuts needs to be found, and political assurances must be given that the plan will be implemented.

The agreement, after weeks of wrangling over the terms of the 130 billion euro bailout, at least removed the imminent risk of a hard default by Greece, which faces a major bond redemption on March 20.

MSCI’s broadest index of Asia Pacific shares outside Japan slid 1.4 percent, moving further away from a six-month high hit the day before, which lifted the index up nearly 14 percent this year.

European shares are likely to inch lower, with financial spreadbetters expecting Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 to open down about 0.1-0.2 percent.

The euro was off a two-month high of $1.3322 reached on Thursday, trading down 0.2 percent at $1.3258.

“I don’t think anyone thinks it’s going to be a nice once-off, tidy solution to the challenge. It’s going to turn out to be the never-ending story and I think that’s kind of the way investors are looking at this now,” said Adrian Foster, head of financial markets research for Asia-Pacific at Rabobank International in Hong Kong.

“It’s getting harder and harder to agree terms with Greece unless there is a real signpost along the way to ensure that Greece is living up to that sort of commitment,” he said.

In Asia, China’s trade shrank in January from a year earlier, with factory shutdowns for Lunar New Year holidays exacerbating a slowdown in external demand that has turned Beijing to take steps to support the domestic sector.

Analysts cautioned that the data had been heavily skewed by the week-long holiday which fell in January this year and in February last year.

Japan’s Nikkei .N225 fell 0.5 percent after opening marginally higher. Hong Kong shares fell 0.9 percent, facing tough resistance at 21,000.

Industrial commodities, such as oil and copper, retreated from Thursday’s rally made on the news of a Greek deal, while gold steadied, as a firmer dollar was offset by support from accommodative monetary conditions worldwide.