Singapore: A rally in Asian shares and the euro stalled on Tuesday as investors remained worried that Greece could default on its massive debts despite an outline agreement by French banks to roll over Greek bonds.
The radical French proposal came as the Greek parliament began debating unpopular austerity measures that are the price of further aid from international lenders.
Rising confidence that the five-year programme would pass when Greece’s fractious lawmakers cast votes on Wednesday and Thursday had encouraged investors to return to riskier assets sold off in recent weeks, with US stocks gaining nearly 1% on Monday to end a three-day losing streak.
European stocks were also expected to bounce, with financial bookmakers in London calling the major indexes up 0.3-0.6%. But an early rally in Asia lost steam, with some warning the euro zone relief may only be temporary.
“We can’t really say Greece can avoid defaulting on its debt yet,” says Shinji Nomura, chief fixed-income strategist at SMBC Nikko Securities.
Japan’s Nikkei, which had been up more than 1% in the morning, ended the day 0.7% higher. MSCI’s broadest index of Asia Pacific shares outside Japan veered between gains and losses, and was up 0.1%. Shares in Hong Kong and Singapore were flat.
Growing doubts that Greece can repay its €40 billion debt mountain have dragged on financial markets in recent weeks, with investors fearing a default could spark a re-run of the panic that engulfed markets after the collapse of Lehman Brothers in 2008.
In a move that helped soothe markets, French President Nicolas Sarkozy announced on Monday that French banks had reached a draft agreement on a voluntary roll-over of maturing Greek bonds that would stretch out loans over 30 years.
The euro rose above $1.43 on Tuesday, having rallied from a low near $1.41 on Monday, before easing back to trade around $1.4270, down a little from late US trade as market players remained cautious on the outlook for the euro zone.
“The market seems to be taking its cues not so much from whether Greece’s problems will be solved or not, but on whether or not there might be a default in the very near future,” said Makoto Noji, senior bond and currency strategist for SMBC Nikko Securities in Tokyo.
Underlining the caution, Japanese government bonds edged up a little as safe-haven assets remained in demand.
Benchmark 10-year JGB futures rose 0.04 point, while the 10-year yield slipped 1 basis point to 1.085%.
Beyond the crisis in Europe, where Ireland and Portugal are also struggling under the weight of their debts despite EU-IMF bailouts, there are broader worries about the strength of the global economy, with growth still weak in much of the developed world and concerns about a slowdown in China.
“US PMI data to be released later this week will be the key to watch on whether the global economy can sustain its momentum,” said K. H. Lin, a vice president at Yuanta Financial Holdings’ fund unit.
Brent crude oil fell 0.1% to $105.84 a barrel and US crude eased a fraction to $90.58.
Oil prices tumbled last week after Thursday’s move by the International Energy Agency to release 2 million barrels per day from reserves over 30 days to address the loss of Libya’s 1.2 million barrels per day of crude exports.
Gold was little changed around $1,497 an ounce, and copper inched up 0.2%.