Global stocks and euro fall on fears of Athens default

WORLD STOCKS fell yesterday and the euro slid to an 8½-month low against the dollar as growing fears of a Greek default stoked appetite for safe-haven US treasury bonds.

The currency also tumbled to a more than decade low against the yen yesterday amid rising tensions in the region. European finance ministers held crisis meetings over Greece, which has warned it will run out of cash next week unless it is offered fresh loans.

The euro came under pressure as euro zone finance ministers, gathering in Luxembourg, were expected to delay a decision on a much-needed €8 billion aid payment for Athens.

Key US stock indices fell more than 1 per cent as financials weighed, eclipsing an early boost from better-than-expected US manufacturing data.

Bank shares were also hit in Europe as investors feared the impact of a Greek default on holders of the country’s bonds, such as Franco-Belgian financial group Dexia

In addition, bankers warned that the European Central Bank may be winding down its government bond-buying programme, the main defence against a deepening of the region’s debt crisis.

The ECB revealed its weekly spending had fallen to the lowest since the programme was reactivated in early August. Bond purchases of €3.8 billion were made in the seven days to the middle of last week – down from €3.9 billion in the previous week.

The ECB made no comment on its intentions.

The euro zone banks parked €200 billion overnight with the ECB on Friday, according to Bloomberg and ECB data. Banks are leaving funds at the ECB rather than lending to others because of fears of counter-party risk or another institution failing to repay loans.

To address bank tensions, the ECB is expected to extend significantly its provision of unlimited liquidity at its governing council meeting in Berlin on Thursday.

A possible interest rate cut will also be on the agenda.

Greek finance minister Evangelos Venizelos insisted his government was taking “all the necessary and difficult measures” to fulfil its obligations to international lenders.

Athens unsettled leaders at the weekend when it said it would miss EU-IMF budget targets, but Mr Venizelos insisted the shortfall was the result of a deeper than expected recession, rather than any failures by Athens.

The euro fell 0.9 per cent to $1.3267 against the dollar and was down 1.4 per cent to ¥101.72 versus the yen. – (Copyright The Financial Times Limited 2011/ Reuters)