While you were sleeping: Greece bites the bullet

Thursday 4th March 2010

Spending cuts in Greece and more positive economic news in the US spurred equities higher in both Europe and on Wall Street overnight.

At midday, the Dow Jones Industrial Average rose 0.38% and the Standard & Poor’s 500 gained 0.48%. The Nasdaq Composite rose 0.4%.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 2.99% to 18.49.

The key economic report in the US was a report showing that the services sector expanded at its fastest pace in more than two years last month. In a separate report, private employers shed fewer jobs in February, adding to signs that the labour market was healing.

Later today the Federal Reserve will release its Beige Book, which measures economic activity across 12 districts.

In Europe overnight, the Dow Jones Stoxx 600 rose 0.7% to 252.50, a six-week high.

Among national benchmarks, the UK ’s FTSE 100 rose 0.9%, Germany’s DAX 30 rose 0.72% and France’s CAC 40 gained 0.8%.

The Greek government detailed plans for 4.8 billion euros of additional cuts in an effort to manage its budget crisis. Government workers will lose some pay and taxes on a range of goods will be increased.

The austerity measures were "difficult" though necessary for "the survival of our country and our economy", Greek Prime Minister George Papandreou said after a cabinet meeting in Athens.

Papandreou told his cabinet today that if the country needed aid and the EU wasn’t forthcoming, he’d consider seeking help from the International Monetary Fund, according to a report by Bloomberg News.

Rising metals prices helped pace miners such as Xstrata Plc and Kazakhmys Plc higher. Other advancers were Solarworld AG and Adecco SA.

Copper rose for a fourth day in London as a weaker U.S. dollar boosted its appeal as an alternative investment. Tin, zinc, nickel and gold also advanced.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.78% to 79.87.

The euro got a boost from the Greek government’s latest budget plans though doubts lingered about how effective the measures would ultimately prove.

In mid-morning trading, the euro was 0.9% higher at US$1.3728, after hitting a session high of US$1.3736, according to Reuters data, the highest level since February 17.

On Tuesday, the euro fell as low as US$1.3432, its weakest since mid-May 2009. Greece's fiscal crisis has helped drive the euro down nearly 10% against the dollar since December.

The euro may reach US$1.40 by the end of March before sliding to US$1.27 by year-end, according to BNP Paribas SA, as tightening credit spreads after Greece’s announcement force traders to buy back euro-dollar short positions.

Bloomberg reported that the U.S. Justice Department was asking hedge funds not to destroy trading records on euro bets. Greece has said speculators have been partly responsible for driving down the euro by betting on the government defaulting on its bonds.

Sterling rose 1 percent to $1.5113, boosted by data showing that Britain's services sector recorded its strongest expansion in more than three year.

The U.S. dollar last traded at 88.40 yen, down 0.4 percent after falling as low as 88.33 yen, its lowest since December, according to Reuters data.

The yield on the U.S. government three-year security increased from the lowest level in three weeks before the government announces tomorrow the size of next week’s estimated US$74 billion note and bond auctions.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.9% to 277.60.

U.S. crude was up US$1.17 at US$80.85 a barrel by 1615 GMT, trading as high as US$80.92 intra-day. Brent crude was up US$1.02 at US$79.20.

“Crude oil's charts look fairly constructive,” said Edward Meir at MF Global, according to Reuters. “Given that we are in shouting distance of the January 2010 highs, we cannot exclude a test of those levels.”

Spot gold was bid at US$1139.95 an ounce at 1537 GMT, against US$1134.50 late in New York on Tuesday. U.S. gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose US$3.3 to US$1140.70 an ounce.

The precious metal is now trading near a six-week high and may climb toward US$1162 an ounce should prices hold above US$1135, according to technical analysis by Commerzbank AG.

Businesswire.co.nz

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