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While you were sleeping EU spurs Greeks to move fast

Wednesday 20th June 2012

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Expectations that the US Federal Reserve will announce measures tomorrow to prop up the flagging expansion bolstered Wall Street.

Also helping the mood were indications that the European Union is motivating Greek parties to form a new government by promising to renegotiate the terms of the nation’s second bailout package in an effort to help revive its moribund economy.

As Fed policy makers began a two-day meeting today, data showed that demand for labour in the world’s largest economy is sagging. US job openings dropped 325,000 to 3.42 million, the lowest level since November, according to Labor Department data.

“Unemployed workers far outnumber job openings in every sector," Heidi Shierholz, an economist at the Economic Policy Institute in Washington, told Reuters.

The latest report confirms other signs of weakness which are underpinning hopes that the Fed will act soon, perhaps announcing help as early as tomorrow after the FOMC meeting concludes.

In late afternoon trading in New York, the Dow Jones Industrial Average gained 1.13 percent, the Standard & Poor's 500 Index rose 1.38 percent, while the Nasdaq Composite Index advanced 1.45 percent.

“People are anticipating some type of response from the Fed tomorrow and are buying or covering shorts in anticipation of that,” Paul Zemsky, head of asset allocation at ING Investment Management in New York, told Reuters. “There's a risk the market gets disappointed.”

In Europe, optimism prevailed that the risk of a Grexit from the euro is declining rapidly.

The Stoxx 600 Index climbed 1.6 percent for the day, while the euro strengthened, rising 1.2 percent to US$1.2720 and advancing 1 percent to 100.44 yen.

Greek parties promised to form a coalition government soon - Pasok leader Evangelos Venizelos told reporters today that a new Greek government could be ready by midday tomorrow - as the country’s European creditors prepare to loosen the conditions of the financial rescue.

A first step will be when Greece’s still to-be-formed government asks for changes to the 240 billion-euro bailout programs, leading to a revision of economic-performance targets sometime before September, a European official told reporters in Brussels today, according to Bloomberg News.

Even so, trouble remains including in Spain which today had to pay 5.07 percent to sell 12-month Treasury bills and 5.11 percent to sell 18-month paper. Yields on longer-term bonds remain above 7 percent as investors worry about the extent of the financial assistance this debt-laden euro zone member will need to help restore the health of its banking system, and rein in the government’s budget deficits.

“The decidedly elevated yield levels leave a question mark firmly in place as regards the sustainability of Spain's public finances while doing nothing to temper speculation as to how long the country might hold out before looking for a more comprehensive bailout,” Rabobank strategist Richard McGuire told Reuters.

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