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While you were sleeping: Greeks agree

Friday 10th February 2012

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Shares in Europe and on Wall Street advanced as Greek leaders finally agreed on reforms and austerity measures needed to secure a new rescue package to avoid default on its debt payments.

Even so the response on financial markets was muted as the package still needs to be formally approved by the European Union, International Monetary Fund and European Central Bank by February 15.

The ECB, as expected, kept its key interest rate at a record low, though indicated that there were signs of stabilisation. President Mario Draghi refused to say what haircut the central bank will take on its Greek bond holdings.

"There is still a fair amount of scepticism that these agreements won't amount to action, given the history," Jack Ablin, chief investment officer at Harris Private Bank in Chicago, told Reuters. "The market's taking a wait-and-see approach."

In early afternoon trading in New York, the Dow Jones Industrial Average eked out a 0.07 percent gain, the Standard & Poor's 500 Index rose 0.16 percent and the Nasdaq Composite Index advanced 0.29 percent.

In Europe, the Stoxx 600 Index ended the session with a 0.2 percent gain. The euro gained 0.3 percent to US$1.3304.

In other supportive measures, the Bank of England said it would inject another 50 billion pounds (US$79 billion) into the UK economy to safeguard a fragile path to recovery by raising its target for bond purchases to 325 billion pounds.

It also maintained its benchmark interest rate at a record low 0.5 percent.

It's been a mixed earnings season on both sides of the Atlantic.

In Europe, of the 114 Stoxx 600 companies that have reported quarterly earnings since January 9, 57 fell short of analysts’ estimates, compared with 52 that surpassed forecasts, according to data compiled by Bloomberg.

“Figures aren’t that bad,” Justin Urquhart Stewart, who helps oversee about US$3 billion at 7 Investment Management in London, told Bloomberg. “Companies are honest about write-offs and this is logical.”

In the US, both Groupon and PepsiCo posted results that disappointed investors. PepsiCo followed Coca-Cola's lead earlier this week and said it will seek to cut costs as prices of key ingredients rise.

A report showed US jobless claims unexpectedly dropped last week, underpinning recent indications of recovery in the labour market and the world's largest economy in general.

It's a good climate to favour stocks, some believe. Warren Buffett warned investors against buying bonds and other holdings tied to currencies because of low interest rates and inflation.

“They are among the most dangerous of assets,” Buffett said in an adaptation of the billionaire's annual letter to shareholders published today on Fortune magazine’s website.

“Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal.”


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