Markets recover on Greek government deal hopes


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The Independent Online

Markets recovered today on hopes for an end to Greece's political chaos. Spanish shares outperformed all others after the government confirmed it will nationalize the country's fourth-largest bank.

The focus in markets remained on Athens after last Sunday's general election left the country in political paralysis. The mandate to form a government passed to Evangelos Venizelos, the leader of the socialist PASOK party and the former finance minister who helped clinch the country's second international bailout and the big writedown on private creditors' bondholdings.

Venizelos said a small left-wing party is close to his pro-bailout position and could give him the majority he needs. He said his meeting with Democratic Left leader Fotis Kouvelis was "if not optimistic, (at least) a good omen."

The hope that Venizelos might to form a government and avoid another round of elections helped shares recover from early losses.

In Europe, the FTSE 100 index of leading British shares closed 0.3 percent higher at 5,543.95 while Germany's DAX rose 0.7 percent to 6,518. The CAC-40 in France ended 0.4 percent higher at 3,130.17.

Spain's IBEX index rose 3.4 percent higher after a 3 percent fall on Wednesday as investors welcomed the government's decision to effectively nationalize the country's fourth largest lender, Bankia.

The yield on the country's ten-year bond dropped 0.06 of a percentage point. Despite the decline, the country's borrowing rate in the markets for its benchmark bond remains at the perilously high level of 6.01 percent. Bond yields indicate the rate at which the government borrows when it taps financial markets. Rates above 7 percent are seen as unsustainable in the long-run.

The Spanish Economy Ministry said after the market close on Wednesday that it will take over Bankia SA, which has high exposure to bad property loans following a crash in the construction sector. The government hopes its plan for the bank, which will be fleshed out on Friday alongside other measures, will form part of a strategy to convince investors the country won't need a bailout like those taken by Greece, Ireland and Portugal.

"The part-nationalisation of Bankia by the Spanish government seems to be welcomed as at least an attempt to try and draw a line under any further potential for a banking crisis here," said David Jones, chief market strategist at IG Index.

That helped shore up the euro, which had fallen to a near four-month low against the dollar on Wednesday. It was up 0.2 percent at $1.2958 on Thursday.

US stocks also rose after a six-day run of losses — the Dow Jones industrial average was up 0.5 percent at 12,895.99 while the broader S&P 500 index rose 0.5 percent to 1,361.83.

Earlier, Asian markets fell after the release of Chinese data showing slower than expected exports and imports in April.

The weak import growth raised fears the world's second-biggest economy wasn't doing enough to stimulate domestic demand amid an economic slowdown. The weaker than expected figures for both imports and exports also reinforced concerns over lax global demand for China's exports and slack Chinese demand for commodities needed from other countries to fuel growth.

Japan's Nikkei 225 index dropped 0.4 percent to close at 9,009.65 and South Korea's Kospi lost 0.3 percent to end at 1,944.93. Hong Kong's Hang Seng fell 0.5 percent to 20,227.28.

But mainland Chinese stocks took a smaller hit, with the poor trade numbers also raising hopes that China's leaders would take steps to ease policy measures to boost demand.

The benchmark Shanghai Composite Index was almost unchanged, gaining less than 0.1 percent to 2,410.23 while the Shenzhen Composite Index of China's smaller, second market rose 0.4 percent to 966.66.

Oil prices recovered alongside equities after sinking over the past few days amid the economic unease in Europe — the benchmark New York rate was up 14 cents at $96.95 cents a barrel.